Sep 24, 2012

Firm Buy (Technical) on dips for COCOLND

(Stock Code: 7205)  (Bloomberg Code: COLA MK Equity)

cocoaland analysis

above: Cocoaland Weekly Chart analysis (click to enlarge)


COCOLND made a major weekly Wave 4 low of MYR1.70 (Jun 2011) with grossly oversold and bullish signals. Most of its chart indicators suggest a very firm upside move. It will break into higher territory, as it breached its key resistance areas (in a Symmetrical Triangle breakout) recently, accompanied by rising volumes.

FIRM BUY (TECHNICAL)  on dips for  COCOLND,  with very  strong  support areas  at  MYR2.36 and MYR2.65. The upside target areas for the stock are at MYR3.25, MYR3.50 and MYR4.20.

COCOLND reported a 33.9% YoY revenue growth from MYR82.7m to MYR110.7m  in its  1H12 results. The growth came via the increase in selling price and trading volume of their fruit gummy and  beverage product
divisions, which experienced revenue growth of 32% and 250% YoY respectively. The group’s 1H12 PBT rose 80%  YoY  to MYR16m due to  management’s  efforts  to  improve  production efficiency by way of process
automation, and better quality control in its manufacturing operations.

COCOLND’s new production facility for its hard candy line has started commercial operations in the current quarter,  and its  new fruit gummy line will be fully operational in 4Q12. This will enable COCOLND to broaden
its  existing customer base and further reinforce  its  presence in both local and overseas markets  moving forward. Management  will continue to take the necessary measures to mitigate the risk of volatile material costs and intense competition in the market. In  view of this, COCOLND is optimistic of achieving satisfactory results this financial year.

It was recently reported that COCOLND plans to invest approximately MYR74m in the next few years to expand its  production capacity by building a new factory. With  higher production capacity, it would be able tofulfil  its  customers’ total  demand for its  hard candy and fruit gummy products. Currently, it is unable to do so due to a lack of sufficient capacity. The expenditure would double its total production to 5.6m  kg of hard candy
and 11.7m kg of fruit gummy annually.

below (click to enlarge) : Cocoaland - Quarterly Earnings Summary

cocoaland quarterly financial summary

Currently, Maybank-IB does not have fundamental coverage  of  COCOLND. A check on Bloomberg reveals that there is  just  one research house that covers the stock; it has  a BUY call and TP of MYR3.05. COCOLND currently trades at a PER of 19.1x and an indicative dividend yield of 2.12%.

Cocoland Holdings Berhad (COCOLND)  manufactures and provides food and foodstuff. It trades processed and preserved foods  and fruits. It also manufactures,  trades and distributes fruit juice and foodstuff on a wholesale and retail basis.

by Maybank IB