AmWatch - Cocoaland Holdings : Strong 1Q; Rejects Navis Asia’s RM2.20/share offer BUY, 26 May 2015

STOCK FOCUS OF THE DAY

Cocoaland Holdings : Strong 1Q; Rejects Navis Asia’s RM2.20/share offer              BUY

We reaffirm BUY on Cocoaland Holdings with a higher fair value of RM2.35/share (vs. RM2.15 previously), pegged to FY15F revised earnings with a higher target PE of 16x (vs. 15x previously) given its growing penetration in the export market.

We have revised upwards our earnings forecasts by 3% over FY15F-FY17F to account for greater margin expansion. Cocoaland recorded a strong set of 1Q results with earnings at RM8mil, a 14% YoY topline growth, and a 5ppts EBIT margin expansion to 15%. 1QFY15 core earnings rose 135% YoY. At 33% of our previous FY15 full-year earnings forecast of RM24.5mil, 1QFY15 core net profit was above our expectation, thanks to:- (1) improved sales volume; (2) stronger export sales; (3) favourable USD/MYR impact; and (4) softer raw material prices. The marginally softer revenue growth, on a sequential basis, was due to the early CNY buying seen in Dec 2014 and the closure of business (including factory production) during CNY in Malaysia and China. 1Q and 4Q are seasonally stronger quarters. 

Most significantly, Cocoaland announced that it had rejected Navis Asia VII Management Company Ltd’s offer to acquire its assets and liabilities for RM377.5mil or RM2.20/share. The offer price values the company at 15x FY15F PE, based on our forecast. This represents a 7% premium to its last traded price of RM2.06/share. We are not surprised by the Navis Asia offer given that Cocoaland are reportedly to be in talks for potential M&A activities.

Going forward, we believe that Cocoaland will remain as an attractive takeover target, underpinned by its strong position as a regional F&B player. Moving forward, we expect sales volume to remain stable. We are not too concerned over expectations of the weak domestic consumer spending, and by extension, impact from the GST, given that export sales anchor more than 60% of revenue. Its attractive dividend yield of 3.6% should support share price.

Others :

MBM Resources : A surprise dip in Hino volumes              BUY

Eastern & Oriental : Tender interview to commence on 29 May  BUY

Carlsberg Brewery : 1QFY15: A sober quarter      BUY

Benalec Holdings : The search for off-taker continues     BUY

WCT Holdings : 1Q earnings in line            HOLD

Supermax Corporation : 1QFY15: In line with expectations            HOLD

Kulim : Aided by forex gain of RM21.3mil              SELL

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