RHB Investment Bank Bhd (RHB Research) has reiterated a BUY call for Guan Chong Bhd, setting a target price (TP) of RM5.10, a potential upside of 79% with an estimated yield of 3%.

This optimistic projection is resulted from the memorandum of understanding signed between Guan Chong and Ivory Coast's Conseil du Café-Cacao (CCC).

The expected synergy of the partnership allows Guan Chong to scale its operations with minimal additional costs while tapping into Ivory Coast's substantial cocoa resources as this region is responsible for around 40% of the global cocoa supply.

The collaboration is expected to deliver Guan Chong quick access to expanded cocoa processing capacity at minimal capital expenditure, enabling the company to secure a stable bean supply amid strong market demand.

Through the partnership with CCC, Guan Chong will gain access to high-quality cocoa beans, including those compliant with the European Union's upcoming Deforestation Regulation (EUDR). The EUDR is anticipated to take effect on Dec 30, 2024, with a phased implementation over the following year, making access to compliant beans a strategic advantage for Guan Chong's long-term plans.

Given the sustained demand and current global supply constraints, the research house predicted that Guan Chong is well-positioned to leverage elevated combined cocoa ratios. This favourable market environment is expected to drive the company's growth for the foreseeable future, and Guan Chong's newly acquired stake in Transcao Coté d'Ivoire is likely to deliver earnings contributions from the financial year 2025 onwards.

RHB Research's TP is based on a price-to-earnings ratio of 15 times, aligning with the Consumer Product Index, while the firm continues to monitor potential upside from Guan Chong's ongoing expansion efforts, both in Ivory Coast and the UK.