AmWatch - Cocoaland Holdings : A sweet quarter; dividend and bonus surprise, 25 Aug 2015

STOCK FOCUS OF THE DAY

Cocoaland Holdings : A sweet quarter; dividend and bonus surprise      Buy

We maintain BUY on Cocoaland Holdings with a higher fair value of RM3.20/share (vs. RM2.15/share earlier) to reflect our more upbeat view of the stock post its better-than-expected interim results. Our fair value is based on a higher target PE of 18x on FY15F earnings. Cocoaland reported a 2QFY15 net profit of RM7.5mil to lift its 1HFY15 earnings to RM15.6mil (YoY: +98%).

We have thus raised our FY15F-FY17F earnings by 19%-25% as we deem the results, which made up 61% of our previous full-year estimate, to be ahead of expectations given that its 2H is seasonally stronger. More importantly, we highlight that the group declared a special dividend of 20 sen/share on top of its usual 2.5sen/share interim to reward its shareholders. This is the first time the group is paying a special dividend. We still expect additional dividends of 5 sen/share for FY15F, which will translate to an attractive FY15F yield of 10% for the group. Further positives for Cocoaland include its proposal for a 1-for-3 bonus share issue. While this exercise will not have an impact on its valuations/fundamentals, it will improve the stock’s trading liquidity and further enhance its appeal. Upon completion (expected in 4QFY15), our fair value is expected to be adjusted to RM2.40/share. YoY, Cocoaland’s revenue was only slightly higher by 4% as the higher demand for its gummy and snack products in both local and export markets was partly offset by lower beverage product volumes from its contract manufacturing business.

Its EBIT margin expanded 7ppts YoY to 16%. This can be primarily attributed to the group’s favourable USD:RM exposure (80% of export revenue is in USD) and softer raw material prices (e.g. sugar and cocoa powder). Our upward revised FY15F-FY17F forecasts takes into account this margin improvement as well as higher utilisation rate of its fruit gummy lines of 60% vs. FY14’s 50%. Export sales make up >60% of the group’s total revenue. The stock is currently trading at undemanding FY15F-FY16F PEs of 14x-15x. We now peg Cocoaland at its 5-year mean PE of 18x (vs. 16x previously) over its FY15F earnings to better reflect its strong fundamentals, franchise value and positive earnings growth momentum.

Others :

Eastern & Oriental : Tender award for STP2 to spur monetisation moves                Buy

IOI Corporation : Hit by unrealised forex loss of RM735.3mil         Buy

MRCB : Building momentum in challenging times              Buy

Benalec : Firm orders needed    Hold

Pos Malaysia : 1Q: Higher costs structure hits earnings    Hold

Felda Global : Back in the black in 2QFY15              Sell

NEWS HIGHLIGHTS

Sime Darby: Sime Darby plans to strengthen Balance Sheet

Eastern and Oriental: Proposed public issue to raise minimum proceeds of RM242mil

DISCLAIMER:

The information and opinions in this report were prepared by AmResearch Sdn Bhd. The investments discussed or recommended in this report may not be suitable for all investors. This report has been prepared for information purposes only and is not an offer to sell or a solicitation to buy any securities. The directors and employees of AmResearch Sdn Bhd may from time to time have a position in or with the securities mentioned herein. Members of the AmInvestment Group and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein. The information herein was obtained or derived from sources that we believe are reliable, but while all reasonable care has been taken to ensure that stated facts are accurate and opinions fair and reasonable, we do not represent that it is accurate or complete and it should not be relied upon as such. No liability can be accepted for any loss that may arise from the use of this report. All opinions and estimates included in this report constitute our judgement as of this date and are subject to change without notice.