INVESTMENT MERITS
- Expecting 2012 to be a good year. The group reported a commendable
1H12 revenue and net profit of RM110.7m and RM12.3m respectively with YoY
growth rates of 34.0% and 61.6%. The former was mainly due to the increase in
the selling price and volume of fruit gummy and beverage products while the
latter was attributable to an improved production efficiency from the increased
automation in its manufacturing, as well as, lower material costs.
- Tremendous growth opportunity going forward. The group is in the midst of expanding its
hard candy & fruit gummy capacities by 4.6x and 2.6x from their existing capacities,
which will be ready by 4Q12 and 1Q13, respectively. We believe these products,
including beverage, will continue to be
the main drivers for its revenue as the products have registered 2-year CAGR of
37.3%, 5.4% and 123.3%, respectively.
- Another major growth driver is the export market. Management
aims to grow the contribution from exports by increasing advertisement and promotional activities in
the regional markets, especially in China, Vietnam and Jakarta.
- Other potential drivers.
The group is also constructing a new factory for the manufacturing of
chocolates and wafers with a production capacity of 4m kg, which is expected to
be commercialised in early-2015. Currently, these products contributed about
10% to the 1H12 revenue and we believe it will continue to grow organically
over the years. Besides, the group is also planning to sign up a few franchise
businesses to maximize the utilisation rate of the new capacity from FY13 onwards.
- Decent yield? The
group has been paying out approximately 50% earnings as dividends in the past.
We reckon that it has the intention to keep paying the same ratio, which should
work out to a decent yield of 3.1% in FY13.
- 17% potential upside.
In the past two years, the stock has been trading above its 5-year
average Forward PER of 15.1x, and once traded above the +2SD-level. While the
stock is trading at 15.9x now, we believe there is still more potential upsides
ahead due to all the reasons above. As such, we have valued the stock at
RM3.06, based on our projected FY13 EPS of 16.7sen on a PER of 18.3x, which is
just the +0.5SD above the average PER.
TECHNICALS
- Resistance: RM2.69 (R1), RM2.85 (R2)
- Support: RM2.55 (S1), RM2.45 (S2)
- Comments: Cocoaland’s share price has been trading sideways
following the run-up in mid-September. We believe the share price is merely
pausing for breath in an overall bullish uptrend and investors should look to
buy into weakness, preferably closer to RM2.55.
BUSINESS OVERVIEW
Cocoaland Holdings Berhad was incorporated on 6 June 2000
and was subsequently listed on 18 January 2005. Cocoaland Holdings Berhad
operates in the business of manufacturing and trading of processed and
preserved foods and other related foodstuffs. The company's products include
candy, canister, cookies, drinks, gummy, hamper, juice, pudding and jelly,
snack and wafer.
BUSINESS MODEL
- Cocoaland manufactures for the OEM market. Its
manufacturing arm is housed in 5 factories in Rawang, Kepong and Kampar for its house brand and the OEM market. The
OEM products are distributed to reputable manufacturers such as GSK, Ribena,
Nestle and Wrigley.
- It mainly focuses on 3 industrial food categories (snack
food, chocolate & sugar confectionery and soft drinks) under its
proprietary brands like Lot100, Koko Jelly, CocoPie, Rotong, Mite and Fruit10.
Source: Kenanga
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