KUALA LUMPUR: AmResearch is maintaining a Buy on Cocoaland Holdings with a higher fair value of RM3.20 a share compared with RM2.15 a share earlier to reflect its more upbeat view of the stock post its better-than-expected interim results.
The research house said on Tuesday its fair value was based on a higher target price-to-earnings PE of 18 times on FY15F earnings.
On Monday, Cocoaland reported a 2QFY15 net profit of RM7.5mil to lift its 1HFY15 earnings to RM15.6mil (on-year: up 98%).
“We have thus raised our FY15F-FY17F earnings by 19%-25% as we deem the results, which made up 61% of our previous full-year estimate, to be ahead of expectations given that its 2H is seasonally stronger,” it said.
AmResearch said more importantly, we highlight that the group declared a special dividend of 20 sen a share on top of its usual 2.5sen a share interim to reward its shareholders.
This is the first time the group is paying a special dividend. We still expect additional dividends of 5 sen a share for FY15F, which will translate to an attractive FY15F yield of 10% for the group.
Further positives for Cocoaland include its proposal for a one-for-three bonus share issue. While this exercise will not have an impact on its valuations/fundamentals, it will improve the stock’s trading liquidity and further enhance its appeal.
“Upon completion (expected in 4QFY15), our fair value is expected to be adjusted to RM2.40 a share,” it said.
The research house said on-year, Cocoaland’s revenue was only slightly higher by 4% as the higher demand for its gummy and snack products in both local and export markets was partly offset by lower beverage product volumes from its contract manufacturing business.
“Its EBIT margin expanded 7ppts on-year to 16%. This can be primarily attributed to the group’s favourable USD: RM exposure (80% of export revenue is in USD) and softer raw material prices (for example sugar and cocoa powder).
“Our upward revised FY15F-FY17F forecasts takes into account this margin improvement as well as higher utilisation rate of its fruit gummy lines of 60% vs. FY14’s 50%.
“Export sales make up more than 60% of the group’s total revenue. The stock is currently trading at undemanding FY15F-FY16F PEs of 14 times -15 times.
“We now peg Cocoaland at its five-year mean PE of 18 time (versus 16 times previously) over its FY15F earnings to better reflect its strong fundamentals, franchise value and positive earnings growth momentum,” the research house said.
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