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Cocoaland Holdings Bhd
We like Cocoaland’s resilient business model — high volume fast-selling candies at affordable prices, strong brand names, capable management, undemanding valuations and growth potential.

Cocoaland manufactures 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 — and also OEM.

The Edge Research rates Cocoaland with Fundamental and Valuation scores of 2.1 and 2.4 out of 3.0, respectively. The stock is trading at a trailing 12-month PE of 14.3 times and P/BV of 1.32 times. These valuations are inexpensive for a consumer company with strong, growing brands.

Its share price has declined by 27.4% to RM1.67 from one-year high of RM2.30 in April 2014. This may be attributed to the 14.3% y-o-y drop in net profit for 9M2014, which was due primarily to higher spending on advertising and promotion (A&P). The company is pushing hard to grow sales volume following recent expansions, particularly for fruit gummy where capacity increased by 160%. Utilisation rate is now only 50%.

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.

With export accounting for 60% of sales, Cocoaland will also benefit from the strengthening US dollar.

Despite spending RM135 million in 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.

The company pays dividends consistently, averaging 50% of net profit for the last four years. Dividends totalled 6.5 sen per share in 2013, translating into a net yield of 3.9%.

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This article first appeared in The Edge Financial Daily, on January 19, 2015.

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