-  We reaffirm our BUY recommendation on Cocoaland Holdings, with an unchanged fair value of RM2.85/share, based on our DCF valuation.

-  Cocoaland’s 9MFY13 results were largely in line with expectations, accounting for 70% of our full-year forecast. We expect the group to finish off the year stronger in 4Q backed by Christmas and Chinese New Year orders.

-  A second interim single-tier dividend of 2.5sen/share was declared, bringing total dividends to date to 5sen/share.

-  On a nine months basis, revenue rose to RM188mil (+14% YoY) mainly due to stronger demand from the beverage segment and its overseas market, especially China for fruit gummy.

-  That said, PBT (-13% YoY) was dragged by higher start-up costs for its new production line (fruit gummy and hard candy), factory labour costs and higher freight charges, which we have accounted for.

-  The group’s EBIT margin improved to 13% from 9.8% in 2QFY13, as a result of better margins achieved for its gummy products.

-  All in all, our earnings numbers are maintained. Cocoaland is poised for growth from its:- (i) Recent capacity expansion (fruit gummy and hard candy) together with a more diversified product mix. Earnings momentum is expected to kick-in from FY14F onwards as the group increases its revenue channels to fill up increased capacity.

(ii) Expansion of the existing beverage line (currently running at full capacity) and the upcoming chocolate and wafer factory (expected completion in FY16) will add c.65% of manufacturing capacity.

(iii) Marketing efforts to expand and penetrate deeper into the local and export market. The trading company in Indonesia is currently awaiting the necessary license (expected to be obtained this year), which bodes well as Cocoaland will solely manage the trading and marketing activities there.

-  Balance sheet remains healthy with a debt-free position and cash pile of RM14mil as at 9MFY13.

-  At the current levels, the stock is trading.

Source: AmeSecurities