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Hershey to Open $250M Malaysian Plant

Zacks Equity Research

Chocolate giant The Hershey Company (HSY) is geared to bolster its presence in the growing market of Asia with the establishment of a $250 million confectionery plant in Johor, Malaysia. The plant is the single-largest investment of Hershey in the last 18 years since it set its foot in the Asian region.

The plant is built with state-of-the-art technology and will carry on innovations in automated candy making technology and high-speed wrapping machines. The location is also a strategic fit for Hershey as it facilitates distribution to 25 Asian markets.

The massive investment in Asia is part of Hershey’s plan to expand its global supply chain and fulfill an ambitious vision of generating revenues of $10 billion by 2017. The plant will manufacture four out of the five global brands of Hershey — Hershey’s Kisses, Ice Breakers, Reese’s and Hershey’s Milk Chocolate bars.

The plant set up in Malaysia is expected to benefit local cocoa producers, especially those who supply the commodity to the U.S. firm.

Although Asian countries like China, Japan, Malaysia and Korea are currently facing macroeconomic headwinds in the form of food inflation, lower government spending and higher taxes, consumers demonstrate high expectations for the quality of chocolate confectionery. They are spending on imported premium chocolate. Hence, it is expected that the chocolate confectionery business will have a bright future.

However, in Malaysia other chocolate makers like Mondelez International Inc. (MDLZ) and Cadbury Plc., which was taken over by Kraft Foods Group Inc. (KRFT), occupy major shares. Hershey currently holds a Zacks Rank #3 (Hold). Another chocolate confectionery stock worth considering is Crumbs Bake Shop (CRMB), which carries a Zacks Rank #2 (Buy).

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