Cocoaland - Turnaround on strong 4Q

Cocoaland Holdings (Cocoaland) posted a 4Q net profit of RM9mil, bringing earnings for the full year to an impressive RM19mil. 

It outperformed our forecast by 17%, but only made up 78% of consensus estimates. We deem the results to be ahead of our expectations, with the positive variance coming from a stronger-than-expected 4QFY11.

Management declared a (single-tier, tax-exempt) second interim dividend of 3 sen/share for the quarter, bringing total dividends to 5.5 sen/share. This is 1 sen higher than that declared in the previous year. 

Cocoaland reported a stellar set of 4Q results. Notwithstanding some seasonality in the final quarter, turnover was up 29% QoQ mainly on the back of higher demand for the group’s core fruit gummies, higher utilisation rate of its PET beverage lines as well as a bettermargin product mix.

Net profit, which tripled to RM10mil from a mere RM3mil in the preceding quarter, was also boosted by margin gains from lower costs of raw materials, namely sugar. As an indication, raw sugar price for 2HFY11 fell 20% from its peak in June 2011. Consequently, costs of goods sold as a percentage of revenue fell 10ppts QoQ in 4Q. 

Cocoaland’s FY11 net profit leapt to RM19mil (YoY: 96%) on back of a 26% YoY rise in turnover. The improved performance was largely due to robust sales volume in 4Q, upward revision in ASPs and lower costs of raw materials, which more than offset the negative effects of a weak US dollar exchange rate used for the group’s exports overseas. All in, we have trimmed our FY12F-13F earnings forecasts by 16%-19%, taking into account our latest utilisation rates and margin assumptions. Earnings growth moving forward is well underpinned by new production facilities for fruit gummies and hard candies scheduled to be operational by end-2012, as well as higher utilisation rates of its PET beverage lines from better off-takes by associate Fraser & Neave Holdings (FNH Mk Equity, Hold) and other MNCs.

We maintain our BUY recommendation on Cocoaland with a slightly higher fair value of RM2.75/share (RM2.45/share previously) as we roll forward our valuation base to FY13F to better capture the group’s earnings potential. We continue to peg FY13F earnings to a fair PE of 15x, or at a 15% discount to F&N’s implied target PE of 18x.   

Source: AmeSecurities