A worker inspects cocoa beans before use in a laboratory at a confectionery plant in Trostyanets, Ukraine. (Photographer: Vincent Mundy/Bloomberg)

This World-Beating Stock May Just Be Everyone's Cup of Cocoa

(Bloomberg) -- Chocolate demand in Asia is booming, and this Malaysian company sits at the epicenter.

The shares of Guan Chong Bhd. have soared more than 170 percent in the past year in Kuala Lumpur as profits doubled, making the producer of chocolate ingredients the best performer on the Bursa Malaysia Consumer Product Index. The MSCI All Country World Index of stocks is broadly flat in the past year.

For Chief Executive Officer Brandon Tay Hoe Lian, Asia’s biggest cocoa bean processor has been riding a wave of improved margins and higher sales. Net income doubled to 189.3 million ringgit ($45.8 million) last year, and 2019 “is looking as good as last year” because of increased capacity and sustained margins, he said in an interview last week.

This World-Beating Stock May Just Be Everyone's Cup of Cocoa

“We’ve been experiencing strong demand since last year,” Tay said, which has helped the company increase the amount of forward sales. People are munching more dark chocolate, seen as an healthier alternative to ordinary snacks, and that’s boosting demand for cocoa, and exacerbating market tightness because of limited supplies of beans in Asia.

Shares of Guan Chong jumped the most in a year on Monday, rising 10 percent to close at 4.08 ringgit, the highest on record.

Going forward, Tay wants to move his processing plants closer to the bean-growing regions as he seeks to double grinding capacity over the next decade. That could mean venturing thousands of miles away to Africa or South America as bean production declines in Malaysia and Indonesia, he said.

Capacity Surge

“I can have additional expansion either in the bean-supply area or the customer area,” Tay said. “For us, the tendency is to go where the beans are. It’s a bit adventurous and some are reluctant to go, but then you’ll miss the chance,” he said. The world’s top producers are Ivory Coast and Ghana, and Tay said African countries are “quite encouraging in terms of tax incentives. We’ve been studying here and there but it’s not concrete.”

The business is driven by demand for powder, and that will determine whether the company expands or not, Tay said. “If there’s a chance for us, if the customer base growing and the so-called margins are sustained, we will grow.”

Guan Chong began as a family business in the early 1980s in Malaysia’s southern state of Johor. The company has expanded processing facilities over the years and has a capacity now of 250,000 tons, making it one of the world’s top grinders after Barry Callebaut AG, Cargill Inc. and Olam International Ltd.

Cocoa bean processing in Asia jumped almost 10 percent in the first quarter from a year earlier, according to data last week from the Cocoa Association of Asia. “Demand in the region remains robust for cocoa ingredients,” it said.

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