KUALA LUMPUR (May 19): Cocoaland Holdings Bhd rose as much as 5.3% after AmResearch Sdn Bhd reaffirmed its “buy” call on the stock with a target price of RM2.15, and highlighted the group’s positive growth prospects.

At 11.56am, Cocoaland rose 9 sen or 4.8% to RM1.98, with 138,600 shares traded. The counter earlier gained as much as 10 sen or 5.3% to reach a high of RM1.99, and was among top gainers on the exchange.

In a note today, AmResearch said it remained positive on the group’s prospects and said that earnings visibility remains intact as the group benefits from capacity expansion and the strengthening of the US dollar against the ringgit, as 80% of its export revenue is dollar-denominated.

The research house said it expects further sales growth for Cocoaland (fundamental: 2.5; valuation: 1.4), driven by continued growth in its high margin products, which contributes about 40% to its total revenue.

Meanwhile, its utilisation rate currently stands at 60%, with management expecting full utilisation in the next two to three years.

“The increased efficiency of lines will mainly be underpinned by the growing export market,” said the research house, adding that the group is expanding aggressively into China, its largest export market for proprietary brands.

On margins, AmResearch said the company’s outlook is robust as lower raw material prices counter higher gelatin prices, while the goods and services tax (GST) implementation has resulted in tax savings, as the majority of its input sales tax were previously at 10% and the remainder are zero-rated.

“We like Cocoaland for its strong market positioning and undemanding valuations of 13 times – below its 3-year historical average of 17 times. Maintain 'buy',” said the research house.

(Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)