Insider Asia’s Stock Of The Day: Cocoaland Holdings Bhd

Shares of snacks and candy maker Cocoaland (Fundamental: 2.8/3, Valuation: 2.0/3) fell as much as 16.7% to an intraday low of RM2.00 on Monday, after Hong Kong-listed First Pacific Co Ltd aborted plans to acquire its underlying business, citing that Cocoaland was no longer a strategic fit. The stock recovered slightly to close at RM2.23 yesterday.

We believe the sell-down presents a good buying opportunity as Cocoaland’s fundamentals remain intact.

Valuations are attractive at trailing 12-month P/E of 13.9 times and 1.62 times book – relative to our forecast of strong double-digit earnings growth this year, which will be underpinned by its 160% and 260% capacity expansion in fruit gummy and hard candy, respectively. 

Cocoaland is also a net beneficiary of the stronger USD, with some 60% of sales from export. 

Furthermore, lower global commodity prices will translate into lower raw material costs for the company. For instance, sugar prices – a key raw material – are now hovering around 11.50 US cents per pound, compared with the average of over 15 cents in the last 12 months. 

To recap, Cocoaland was featured as one of InsiderAsia’s Top 10 Stock Picks for 2015, back in January. Since then, its share price has been rising steadily, from RM1.51 to a high of RM2.50. This can be attributed, in part, to its stellar 1Q15 earnings results as well as the two takeover offers received.

The first offer was from Navis Asia VII Management Co Ltd for an equivalent of RM2.20 per share in late-May, which the company rejected, and a week later, from First Pacific for RM2.70 per share. 

For 1Q15, sales grew 14.3% y-o-y to RM67.7 million while net profit more than doubled to RM8.0 million, boosted by better sales mix as well as strengthening of the greenback.

This article first appeared in The Edge Financial Daily, on July 23, 2015.