KUALA LUMPUR (Jan 19): Shares of Cocoaland Holdings Bhd rose as much as 10 sen or 5.88% in morning trades today after Insider Asia said the company has a resilient business model.

As of 11.02am, Cocoaland (fundamental score: 2.1; valuations score: 2.4) was up 3.53% or 6 sen to RM1.76 with  320,100 shares done.

In a research report published in The Edge Financial Daily today, Insider Asia said Cocoaland’s resilient business model was based on high volume, fast-selling candies at affordable prices, strong brand names, capable management, undemanding valuations and growth potential.

Cocoaland's principal activity is manufacturing fruit gummy, hard candy, chocolates, cookies, wafer, and beverages under its own brand names — including the popular Lot100, Cocopie, Mum’s Bake, Koko Jelly and Fruit 10.

"The stock is trading at a trailing 12-month price to earnings (PE) of 14.3 times and price to book value (P/BV) of 1.32 times," Insider Asia said, adding that, these valuations were inexpensive for a consumer company with strong, growing brands.

Cocoaland's share price had declined by 27.4% to RM1.67 from one-year high of RM2.30 in April 2014 due to the 14.3% year-on-year drop in net profit for nine months of financial year 2014 (9MFY14), which was due primarily to higher spending on advertising and promotion (A&P).

Insider Asia noted that the company was pushing hard to grow sales volume following recent expansion, particularly for fruit gummy where capacity increased by 160%.

"As the sole producer of fruit gummy in Malaysia, it commands gross margin of about 30%, well above that for the other products. Fruit gummy currently accounts for about 38% of sales. If successful, the shift to high-margin fruit gummy bodes well for Cocoaland’s margins and earnings going forward," it added.

With export accounting for 60% of sales, Insider Asia said Cocoaland would also benefit from the strengthening US dollar.

"Despite spending RM135 million in capital expenditire (capex) over the past four years, it has zero borrowings — underscoring Cocoaland’s steady operating cashflow.  Net cash stands at RM23.9 million. ROE averaged 10.8% for the past three years," Insider Asia added.

(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.)