Stock Name: COCOLND
Company Name: COCOALAND HOLDINGS BHD
Research House: CIMB
Cocoaland Holdings Bhd
(May 24, RM 2.09)
Maintain underperform at RM2.10, target price of RM1.88: Despite coming in at only 81% of our forecast when annualised, Cocoaland's 1QFY11 results met market and our expectations as earnings should be stronger in the remaining quarters. No interim dividend was declared, which was within our expectations.
We maintain our earnings per share forecasts and our target price of RM1.88, which is based on 13.1 times price-earnings ratio, a 10% discount to our target market PER of 14.5 times.
The stock remains an underperform given the potential downside triggers of a further rise in raw material and packaging costs; larger than expected losses for its bottling operations and delays in construction of its new factory.
For exposure to the mid-cap food and beverage sector, we prefer CI Holdings Bhd.
Cocoaland's 1QFY11 earnings before interest, tax, depreciation and amortisation (Ebitda) margin was 14.6%, a strong recovery from 4QFY10's 7%.
This was mainly due to the company's ability to pass on the cost of raw materials through a 10% increase in average selling price. The polyethylene terephthalate (PET) hot bottle operations probably recorded a small loss in 1QFY11 but volume should improve later this year when it secures more orders.
However, we do not expect any profit from the operations this year as it will take time to raise its utilisation above the 55% to 60% break even level. The annual capacity is 240 million PET bottles after the capacity expansion in 1QFY11.
However, raw material prices are on the rise. We estimate that sugar accounts for 30% to 40% of total raw material costs, which, in turn, make up 25% of Cocoaland's production costs.
The commercial sugar price has soared 60% year-on-year to RM2.62 per kg. Although Cocoaland is not one of the 13 beverage producers that lost their entitlement to sugar subsidies in January 2011, the company started paying RM2.30 per kg for sugar this month following an increase in the price of subsidised sugar.
The subsidised price is currently only 13% lower than the commercial selling price. We think that it is only a matter of time before the subsidy is scrapped altogether.
At end-2010, Fraser & Neave Holdings acquired 39.6 million new Cocoaland shares or a 23.1% stake at RM1.38 a share. The RM54.6 million cash raised will be used for Cocoaland's capital expenditure this year.
In March, Cocoaland acquired land for its expansion programme. The new factory, which is expected to be completed by year-end, will boost the company's annual production capacity by 50% to 6,700 tonnes for fruit gummies and double its coco-pie capacity to 6,000 tonnes. ' CIMB Equities Research, May 24
This article appeared in The Edge Financial Daily, May 25, 2011.
Company Name: COCOALAND HOLDINGS BHD
Research House: CIMB
Cocoaland Holdings Bhd
(May 24, RM 2.09)
Maintain underperform at RM2.10, target price of RM1.88: Despite coming in at only 81% of our forecast when annualised, Cocoaland's 1QFY11 results met market and our expectations as earnings should be stronger in the remaining quarters. No interim dividend was declared, which was within our expectations.
We maintain our earnings per share forecasts and our target price of RM1.88, which is based on 13.1 times price-earnings ratio, a 10% discount to our target market PER of 14.5 times.
The stock remains an underperform given the potential downside triggers of a further rise in raw material and packaging costs; larger than expected losses for its bottling operations and delays in construction of its new factory.
For exposure to the mid-cap food and beverage sector, we prefer CI Holdings Bhd.
Cocoaland's 1QFY11 earnings before interest, tax, depreciation and amortisation (Ebitda) margin was 14.6%, a strong recovery from 4QFY10's 7%.
This was mainly due to the company's ability to pass on the cost of raw materials through a 10% increase in average selling price. The polyethylene terephthalate (PET) hot bottle operations probably recorded a small loss in 1QFY11 but volume should improve later this year when it secures more orders.
However, we do not expect any profit from the operations this year as it will take time to raise its utilisation above the 55% to 60% break even level. The annual capacity is 240 million PET bottles after the capacity expansion in 1QFY11.
However, raw material prices are on the rise. We estimate that sugar accounts for 30% to 40% of total raw material costs, which, in turn, make up 25% of Cocoaland's production costs.
The commercial sugar price has soared 60% year-on-year to RM2.62 per kg. Although Cocoaland is not one of the 13 beverage producers that lost their entitlement to sugar subsidies in January 2011, the company started paying RM2.30 per kg for sugar this month following an increase in the price of subsidised sugar.
The subsidised price is currently only 13% lower than the commercial selling price. We think that it is only a matter of time before the subsidy is scrapped altogether.
At end-2010, Fraser & Neave Holdings acquired 39.6 million new Cocoaland shares or a 23.1% stake at RM1.38 a share. The RM54.6 million cash raised will be used for Cocoaland's capital expenditure this year.
In March, Cocoaland acquired land for its expansion programme. The new factory, which is expected to be completed by year-end, will boost the company's annual production capacity by 50% to 6,700 tonnes for fruit gummies and double its coco-pie capacity to 6,000 tonnes. ' CIMB Equities Research, May 24
This article appeared in The Edge Financial Daily, May 25, 2011.
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