INVESTMENT MERIT
- Rebound in progress? Since our first report on 9 Oct 2012,
the share price of Cocoaland has fallen by 13%. This was mainly due to the weak
market sentiment last month, which affected the share prices of most consumer
stocks as well. However, many of these consumer stocks have since rebounded and
we believe Cocoaland is likely to follow suit.
- 9M12 result in line. Cocoaland posted a 9M12 net profit of
RM16.8m which met our expectations as well as the market. Its 3Q12 net profit
dropped 38% QoQ from RM7.3m to RM4.5m mainly due to lower beverage sales, a
higher FX loss and also a higher marketing expenditure. A 2.5 sen NDPS was
declared in 3Q12, bringing the total YTD NDPS to 5.0 sen.
- New capacity to drive earnings. RM15.0m capex has been allocated
for its hard candy production line while RM29.0m capex has been budgeted for
fruit gummy’s. This is expected to increase the hard candy production capacity
from 1.0m kg to 4.6m kg in 4Q12 while fruit gummy’s will see a similar rise
from 4.5m kg to 11.7m kg in 1Q13. As such, FY12-FY13 net profits are projected
to grow at 18% and 27%, respectively. FY12- FY13 NDPS is expected to be 6.5
sen-8.2 sen, implying new yields of 3%-4%.
- Still a Trading Buy. Due to the sharp fall in the share
price of late, the targeted +0.5SD above its 5-year average PER has fallen to
17.7x (18.3x previously). Thus, our new fair value is now RM2.97 from RM3.06
previously. We believe this is fair given that the company is expected to
deliver a 27% YoY net profit growth to RM29m in FY13, which is relatively
higher than Oldtown’s 19% (Currently, we are pegging Oldtown’s TP at +1.5SD
above its 5-year average PER of 14.5x).
SWOT ANALYSIS
- Strength: i)
Established OEM partnership with MNCs and ii) Rising revenue contribution from
the export market.
- Weaknesses:
Less renowned proprietary brands.
- Opportunities:
i) Higher production capacity for hard candy&fruit gummy; ii) Venture into
franchise business; iii) New plant construction; iv) New business opportunities
in Vietnam, Indonesia & China.
- Threats: i)
Increasing raw material costs and ii) Intense competition in the domestic and
export markets.
TECHNICALS
- Resistance:
RM2.60 (R1), RM2.85 (R2)
- Support: RM2.20
(S1), RM2.10 (S2)
- Comments: Despite
the recent selldown, Cocoaland’s overall uptrend remains largely intact. The
share price has retreated to the trend line, where we expect some degree of
bargain hunting to exist. Investors looking to gain exposure to the stock may
consider buying in at these levels.
BRIEF BACKGROUND
Cocoaland Holdings Berhad was incorporated on 6 June 2000
and was subsequently listed on 18 January 2005. Cocoaland’s listing status was transferred
to the Main Board on 18 July 2006. 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 OVERVIEW
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.
Cocoaland is F&N’s non-exclusive contract partner for
preparing, packaging and delivering F&N products in Malaysia. F&N owns
a 27.2% interest in Cocoaland.
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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