[MARC] MARC Ratings maintains JB Cocoa’s outlook at negative

MARC Ratings has affirmed its rating of A+IS on JB Cocoa Sdn Bhd’s RM500.0 million Islamic Medium-Term Notes (Sukuk Wakalah) Programme. The rating outlook remains negative.

JB Cocoa is a wholly-owned key manufacturing subsidiary of Singapore-based JB Foods Limited, which has provided a corporate guarantee on the programme. Accordingly, the rating assessment considers the consolidated credit profile of JB Foods in view of operational and financial linkages within the group.

The negative outlook continues to reflect MARC Ratings’ view that the prevailing volatile and high cocoa bean price environment has continued to weigh on JB Foods’ group working capital requirements, leading to high borrowings. Since the price of cocoa beans began escalating in 4Q2023, JB Foods’ leverage has risen to 1.51x from around 1.0x between end-June 2024 and end-2022. Meanwhile, the rating affirmation reflects JB Foods’ defensible market position as one of the key cocoa processors globally, and its longstanding experience in the cocoa industry.

The rating agency notes that cocoa bean price has eased, from USD11,878/MT on April 19, 2024, to USD7,722/MT on September 30, 2024, but has remained considerably higher than around the USD3,000/MT level prior to the price increase. The high cocoa price resulted from the significant decline in cocoa bean production in Côte d’Ivoire and Ghana, partly attributable to adverse weather conditions; collectively, these countries have been producing around 60% of the world’s supply over the last decade. However, for the current 2024/2025 crop year (ending on September 30, 2025), anticipated conducive weather conditions are expected to boost cocoa bean production from the estimated supply of 4.33 million MT for the 2023/2024 crop year.

MARC Ratings views that supply concerns are allayed as JB Foods has been able to source its supplies from other countries aside from Côte d’Ivoire and Ghana. Combined grinding capacity increased to 210,000MT p.a. as at end-June 2024 (end-2023: 180,000MT p.a.) following a process to debottleneck its Malaysian plant; this has led to the plant contributing to 71% of group capacity (Indonesian plant: 29%). Annualised utilisation rate would stand at a healthy 80% in 2024 (2023: 92.5%) despite the additional capacity, underscoring the group’s track record in managing capacity expansion in sync with demand. The group’s global market share would remain at around 3% for 2024, a level it has maintained over the past five years. MARC Ratings understands that the group has deferred the completion of its new 30,000MT p.a. Côte d’Ivoire facility from end-2024 to end-2025, in view of the challenging cocoa bean price market.

For 1H2024, JB Foods recorded cash flow from operations of negative RM84.2 million (2023: negative RM206.0 million) due to high cocoa bean inventory cost. The cost of purchasing cocoa beans typically accounts for about 90% of the group’s cost of sales. Borrowings increased to RM1.5 billion (end-2023: RM1.2 billion) mainly to fund working capital requirements. Unutilised credit lines of RM360 million, mainly under the rated programme, and around RM124 million at group level provide headroom for working capital. Operating profit increased to RM77.8 million (1H2023: RM72.5 million); on including an unrealised fair value mark-to-market gain of RM183.4 million on the group’s forward contracts, operating profit would stand at RM261.2 million. For full year 2024, sales volume is projected to increase by around 5% y-o-y.

Over the near term, the rating outlook could be revised back to stable if pressure on borrowings to fund working capital requirements eases amid a more stable cocoa bean price environment. Conversely, if the elevated borrowings continue to rise without the group putting in place adequate balance sheet support, the rating could be lowered.

Umar Abdul Aziz, +603-2717 2962/ umar@marc.com.my
Cyndy Goh, +603-2717 2941/ cyndy@marc.com.my
Taufiq Kamal, +603-2717 2951/ taufiq@marc.com.my