Kuala Lumpur: The United States’ tariffs are poised to negatively affect the profit margins of Guan Chong Bhd’s (GCB) products destined for the US market, particularly butter and liquor, as reported by MIDF Amanah Investment Bank Bhd.
According to BERNAMA News Agency, the investment bank highlighted in a research note that the tariff gaps introduced by President Donald Trump’s administration suggest a risk of margin erosion for GCB’s US-bound sales. This is especially concerning for products sourced from regions with high exposure, such as Malaysia and C´te d’Ivoire.
The investment bank elaborated that GCB’s plants in Malaysia and C´te d’Ivoire are primary suppliers to the US market. It noted that for the 2024 financial year, GCB’s total group sales comprised 28 percent butter, 15 percent liquor, 9 percent cake, and 3 percent powder exposure to the US. The higher margin products, butter and liquor, face the most significant US tariffs, thereby exerting pressure on GCB’s profitability.
GCB’s export volume to the US is predominantly butter and liquor. The company is taking steps to mitigate the tariff impact by diversifying its export markets to the European Union (EU) and the United Kingdom (UK) and implementing a ratio-based pricing model.
MIDF Amanah pointed out that GCB’s operations in Schokinag, Germany, and the UK offer alternative markets with minimal tariff exposure. The C´te d’Ivoire plant is operating at full capacity, with half of its production supporting EU chocolate factories. Additionally, GCB’s UK facility has increased its capacity to 22,000 metric tonnes in the latter half of 2024.
Beyond global diversification, MIDF Amanah suggested that employing a ratio-based pricing model could protect profits despite fluctuations in cocoa prices. The investment bank also mentioned that elevated cocoa prices bolster average selling prices and earnings before interest, taxes, depreciation, and amortisation.
The report concluded by affirming that while GCB’s earnings resilience remains strong, the contribution from the US market faces challenges due to evolving trade policies.