KUALA LUMPUR, RHB Investment Bank Bhd (RHB IB) is positive on cocoa manufacturer Guan Chong Bhd's (Guan Chong) recent memorandum of understanding (MOU) with Ivory Coast's Conseil du Café-Cacao (CCC) to acquire a 25 per cent stake in CotéTranscao d'Ivoire (CI). The MOU would involve cocoa processing, manufacturing, and distribution. In a research note, RHB IB said the mutually beneficial venture would give Guan Chong quick access to additional grinding capacity (currently 335,000 tonnes) at minimal capital expenditure (capex) to capture more sales and market share amid the current favourable market conditions, with a synergistic partnership. The MOU would also secure bean supply to capture the current robust market in view of the ongoing supply shortage and sustained strong demand, resulting in the prolonged elevated combined ratio. It said CCC would stand to benefit from production efficiency and Guan Chong's established international sales channel. The venture is expected to be earnings accretive in the financial year 2025 (FY25), given the minimal additional resources required as Guan Chong's operations in Ivory Coast are in close proximity, although the final agreement has yet to be ironed out. "We believe this will catalyse Guan Chong's earnings growth at least in the next year, given the forward selling mechanism. "Furthermore, there could be a structural change that may extend the elevated combined ratio. This is due to the new normal in the operating environment of supply shortage, additional hedging and holding costs, as well as the heightened risk premium (volatility) that grinders have to undertake," said the investment bank. It said further upside could stem from production growth in its Ivory Coast (tax-free) and UK plants, as well as the new proposed joint venture (JV) with CCC. RHB IB has maintained its forecast for Guan Chong with a 'buy' call and a target price of RM5.10. Risks to its call include sharp raw material price fluctuations, weaker cocoa demand, a softening of the US dollar-rin ggit rate and counterparty risks. Source: BERNAMA News Agency