Guan Chong Bhd, the world's fourth-largest cocoa grinder, has retained a 'Buy' call for its shares at RHB Research with a 52-week target price of RM3.30, up 60 sen from its earlier price.

In a note today, the research house said it remained bullish on Guan Chong's anticipated robust performance in FY24, driven by margin expansion (higher ratio and revenue).

"There is still substantial upside to the share price as we think the market has underestimated sustainable earnings potential from its newfound pricing power, bolstered by limited capacity and resilient demand despite prolonged elevated cocoa bean prices.

"These unprecedented conditions have provided a fertile ground for GUAN to gain market share and extend its reach," it said.

The stock was trading at RM2.10 at 2.10pm today, a 54% gain year-to-date. Its 52-week high/low were RM2.74/RM1.51.

Guan Chong is principally involved in the manufacturing of cocoa-derived food ingredients, namely cocoa mass, cocoa butter, cocoa cake and cocoa powder.

In the report, RHB Research said contrary to unsubstantiated thesis in the market, it believed that the company stood to benefit from more than just a one-off advantage stemming from securing low raw material costs early in the current environment of elevated bean prices.

"Rather, the most important profitability metrics of a grinder rely on the combined ratio (which is a key driver in the ASP and revenue) among others.

"In normal circumstances, both the butter and solids ratios tend to balance off each other in an uptrending and downtrending cocoa bean price environment, leading to a rather neutral impact on profitability," it said.