Cocoaland looks to sweeter times post-pandemic

Tuesday 23 Apr 2024

This article first appeared in The Edge Malaysia Weekly on March 29, 2021 - April 4, 2021

ABOUT six years ago, self-made confectionery tycoon Liew Fook Meng was about to retire with hundreds of millions of ringgit.

Cocoaland Holdings Bhd, a Rawang-based snack and candy maker co-founded by him and his brothers, was to be sold to Hong Kong-listed First Pacific Co Ltd for RM463.32 million cash in 2015. But in a surprising turn of events, First Pacific — controlled by Indonesian tycoon Anthoni Salim — withdrew its offer, saying that Cocoaland’s product range did not align with its regional food expansion plans (see accompanying story).

Since then, it has been mostly business as usual for Cocoaland. If anything, Liew remains committed to driving the confectioner forward by expanding its product portfolio and manufacturing capacity.

The executive director of Cocoaland believes candy makes for a resilient business, but concedes that the Covid-19 pandemic has affected the group’s financial performance and delayed its expansion plan.

“This will not be an exciting year for us, but that doesn’t mean we will just sit here and do nothing. We will continue to expand our production capacity in preparation for a better year in 2022,” Liew tells The Edge in a rare interview.

In the financial year ended Dec 31, 2020 (FY2020), Cocoaland’s profit declined 43% to RM20.38 million, from RM35.73 million a year ago.

“The impact of the pandemic was quite significant to us. We expect FY2021 to remain very challenging, especially the first half of the year. But going forward, when travel restrictions are lifted and the tourism industry is back to normal, we are hopeful our business will recover strongly in FY2022,” he remarks.

Interestingly, tourists have been a main customer segment for Cocoaland in Vietnam, South Korea and Kota Kinabalu, contributing sales of RM20 million to RM30 million every year.

“This is one area in which we were affected the most,” says 73-year-old Liew, whose family vehicle owns almost 40% of Cocoaland. Before he and his brothers established the company, they distributed deep fried foodstuff from a van in the 1970s.

But as with many entrepreneurs of his generation, Liew dabbled in many other businesses. Apart from food and beverage, he also ran a record label company and owned video retailer Speedy Video.

Cocoaland, however, proved to be the sweetest venture. Today, the company is the largest gummy candy producer in Malaysia and exports to more than 40 countries in Asia, including the Middle East. About half of the group’s income comes from the export markets.

“We remain very optimistic about the prospects of the local and export markets. We expect to see ‘revenge spending’ post-pandemic. People will spend more than they routinely spent before the pandemic because they will be very excited about being able to travel and shop again,” Liew predicts.

The gummy candy business segment alone contributes more than 50% of group revenue. But selling its products online via e-commerce platforms has not been easy for Cocoaland.

“Imagine, before the pandemic, when you went to the supermarket and your child told you he wanted candy when he saw it, you would buy it for him because that made him happy. But if you were shopping online or shopping alone, you would probably not search for candy to buy it for your child. That is how people’s shopping habits have changed since the outbreak of the pandemic,” says Liew.

Nevertheless, he remains optimistic about the long-term prospects of Cocoaland as he believes candy makes children happy and that most parents are willing to spend a little to indulge them.

Business expansion and M&A

In 2019, Cocoaland invested RM40 million to increase the production output of its gummy candies. About RM10 million was invested in a new plant while the remainder was spent on equipment and machinery.

“Unfortunately, the new production lines are not up and running yet, because we are still waiting for the engineers from Germany to come here and finish the installation for us,” says Liew.

Annually, a lot of gummy candies are sold by Cocoaland — some RM130 million worth and rising.

“When our new plant is commissioned and goes full steam, our estimate is that this business segment could contribute about RM170 million in revenue — 30% higher than now — in the coming years,” says Liew.

In addition, Cocoaland is investing RM5 million to increase its output of cookies, wafers and crackers, as well as to purchase some machines from Japan and Taiwan.

Its expansions have been funded through internally generated funds. As at Dec 31 last year, it had net cash of RM77.1 million.

Cocoaland currently operates three plants. The first (five acres) produces gummy candies, hard candies and snacks, while the second (two acres) makes wafers and cookies. The third plant (eight acres) manufactures beverages, gummy candies, hard candies and chocolates. Its upcoming fourth plant, which will take up two acres, will focus on gummy candies.

Liew notes that Cocoaland has been growing organically since it was founded 40 years ago. But it is now exploring mergers and acquisitions (M&A) opportunities.

“We hope to acquire some food-related companies. We need to invest and expand our product portfolio, so that Cocoaland does not remain stagnant. If the target acquiree has a niche in a certain market segment, we don’t mind acquiring it at a premium,” he says.

Shares of Cocoaland have been trading below RM3 since August 2017, dropping to less than RM2 since December 2019. Last Thursday, the counter closed at RM1.76, giving the company a market capitalisation of RM402.69 million.

Cocoaland is trading at a historical price-earnings ratio (PER) of 19.7 times. Its closest peers, Apollo Food Holdings Bhd and Oriental Food Industries Holdings Bhd, are trading at 18.9 and 14.9 times respectively.

“Among the three of us, Apollo and Oriental actually share more similarities. Both of them are very strong in the Swiss roll market. They also make crackers and wafers like we do,” says Liew.

“But our key product is gummy candies, which they don’t produce. I can’t speak on behalf of Apollo and Oriental but in my view, locally listed confectioners should be valued at a PER of at least 15 times. However, if we were to get listed in Hong Kong, we could be valued at not less than 20 times.”

Of family succession and failure of First Pacific buyout

The founders of Cocoaland Holdings Bhd are still on the lookout for suitors to buy out the company, as it wants younger successors — but not family members — to take over the confectionery business.

Unlike most old-fashioned Chinese businessmen in Asia, Liew Fook Meng, the low-profile, media-shy co-founder of Cocoaland, is against passing on the family business to the next generation just because it is a common practice, as he feels that it would put limits on the next generation. He would rather see the family’s offspring find their own way, and perhaps go on to even bigger things, although Cocoaland’s confectionery empire is nothing to sneeze at, with annual sales of some RM216 million and rising.

“I believe that we should let our next generation find their own path in the world. If our children are good, they should be able to find a job elsewhere — they don’t have to come to Cocoaland. If our children are not good, then Cocoaland does not need them,” says Liew, who holds rather untraditional views on business succession within a family.

He does not understand the mentality of businessmen who think that their children should take over their operations, deeming it selfish thinking.

“Who knows ... maybe they could become business tycoons in other industries? If we sell our company, we could use our money to fund their dreams or business ideas. We gave them a good education, and we could give them funding to start a new company. So, what more do our children need? Don’t forget, we started Cocoaland from zero ... nobody gave us any funding.

“After all, Cocoaland is just a confectioner. We sell snacks and candy. We make people happy. But it is not the most important industry in the world where we could save lives or anything. Therefore, we should give our children more freedom, instead of bringing them in to make candy,” says the septuagenarian, who may be getting on in age but continues to oversee the company’s expansion after two previous offers to take it over failed to materialise.

In 2015, suitors knocked on Cocoaland’s door, not once or twice, but thrice.

In April that year, Cocoaland was in preliminary talks with Swedish private equity group EQT Partners to dispose of a controlling stake, though no firm offers were disclosed.

On the heels of the EQT discussions, Cocoaland received a takeover offer amounting to RM377.52 million or RM2.20 per share from Navis Asia V11 Management Co Ltd. But the board decided to reject the offer in May.

A month later, Cocoaland received yet another takeover offer from Hong Kong-listed First Pacific Co Ltd to acquire its entire business for RM2.70 per share, or RM463.32 million in cash.

At this point, the Liew family, the controlling shareholders, were ready to cash out to First Pacific, which is controlled by Chinese-Indonesian tycoon Anthoni Salim, also known as Liem Hong Sien, of the Salim Group.

But to the surprise of many, the deal was called off in July 2015.

Although the company informed Bursa Malaysia that the withdrawal was due to “a difference in the strategic fit offered by Cocoaland from what First Pacific had envisaged”, what really happened behind the scenes was never fully explained.

Six years on, Liew is finally ready to break his silence on the aborted deal.

“I went to visit them in Hong Kong. We had a great discussion and smooth negotiations. Everything was good. They made a quick decision to take over our businesses. The deal was almost completed. But it was at the very last moment that they asked me to stay in the company and remain as the CEO,” he tells The Edge.

“I told them I couldn’t. Cocoaland was founded by me and my brothers. We had decided to sell the businesses and exit the company together. I did not want to betray my family members.”

He maintains that when the Liew brothers agreed to sell Cocoaland to First Pacific, they were under the impression that all family members would be allowed to exit the company.

“But when I found out that they wanted me to stay, I had to humbly decline the offer because I could not be the only one to stay. First Pacific made it clear to me that if I did not accept their job offer, they would have no choice but to pull out of the deal. They put the contract on the table, and I didn’t have time to react. So, my immediate response to them was that ‘my family is very important to me, and if I take the job, it would be against my principles’. That’s how the deal was aborted eventually,” Liew reveals.

He acknowledges that the scrapping of the deal shocked many investors but insists it was difficult for him to explain what transpired then.

“Looking back on the incident, I think the deal was probably being finalised a little bit faster than First Pacific’s expectations, and they didn’t have sufficient time to identify a suitable CEO to run Cocoaland,” says Liew, who is thankful the aborted deal did not affect his relationship with his brothers.

“Of course, over the years, there have been some disagreements between us over business decisions — that’s normal. But as a family, we are together. We have always remained very humble and low profile. We were very poor in the early days. When we started Cocoaland, we never thought of becoming rich and all that. We just wanted to make a living.”

In the earlier days before establishing Cocoaland, the Liew brothers were small-time vendors for Apollo Food Holdings Bhd, Oriental Food Industries Holdings Bhd and Mamee-Double Decker (M) Sdn Bhd. At one point, they sold deep-fried snacks and banana fritters by the roadside.

Even though the buyouts did not materialise, the Liew family still plans to eventually cash out but are not in a hurry to sell unless the price is right.

“Cocoaland is still up for sale, but we are not desperate to sell the company. It is not like Cocoaland is in a bad shape or anything,” stresses Liew, who, in the interim, will continue to make even more candies.

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