KUALA LUMPUR: GUAN CHONG BHD [] shares fell to a four-day low of RM2.85 in late afternoon on Wednesday, May 4 as investors took profit after the recent strong run-up its share price in recent weeks.

At 4.04pm, it was down 15 sen to RM2.85 with 366,800 shares done. The warrants fell eight sen to RM1.31.

Hwang DBS Vickers Research had recently initiated coverage with Buy call and RM3.60 target price.

'Our fair value is pegged to 10x target PE, using fully diluted FY12F EPS. This is a steep discount to DBS Vickers' 15 times FY11/12 PE accorded to Singapore-listed Petra Food, its nearest peer,' it said.

HDBSVR said Guan Chong was an under-researched counter.

'We like it because its market cap (RM941 millio) is poised to expand along with strong profit growth. Potential risks to earnings are a global economic collapse (leading to customers deferring deliveries as demand falls) and disruptions to cocoa bean supply,' it said.

To recap, Guan Chong manufactures and sells cocoa ingredients: cocoa butter (54% of FY10 revenue), cocoa powder/cake (43%) and cocoa liquor (3%). Exports were 92% of sales last year as it counts global chocolate manufacturers like MARS, Hershey's and Lotte as customers.

Since 1990, its capacity has increased from 6,000 tonnes per annum to'' 140,000 tonnes now to rank among the top 10 cocoa processors in the world.

'It is set to grow bigger when another 60,000 tonnes per annum at its new plant in Indonesia ' which has the advantage of buying zero-tariff local beans ' is fully completed by 2Q12,' it said.