- We reaffirm our BUY recommendation on Cocoaland Holdings with a lower DCF-based fair value of RM2.60/share (vs. RM2.85/share previously), following adjustments to our WACC to reflect the risk of weaker

consumer sentiments moving forward.

- Cocoaland’s 4QFY13 results were above expectations, comprising 107% of our and 110% of consensus projections. The group reported a core net profit of RM8mil for 4QFY13, which brought FY13 core earnings to

RM22mil.

- A dividend of 1.5sen/share was declared, bringing total dividends to 6.5sen/share for FY13.

- A positive surprise in the results is the better-thanexpected EBITDA margin of 16.1% vs. FY12’s 15.9%.

- The strong underlying top-line growth of 14% was mainly caused by the increase in trading volume of beverage product.

- Cocoland registered a 5% YoY increase in PBT, buoyed by improved sales in fruit gummy and beverage products. But this was neutralised by higher start-up cost for its new production line (for fruit gummy and hard candy), increase in factory labour cost due to the minimum wage policy, and higher freight charges.

- The 4QFY13 sales increase was underpinned by higher demand during Christmas and an early Chinese New Year period this year.

- Future earnings enhancement will be predominantly driven by stable consumption demand for fruit gummy and beverage, coupled with rising contribution from exports, in line with its capacity expansion.

- It has been experiencing higher demand for its products in overseas market, particularly China, in FY13.

- Post-result adjustments, we have fine-tuned our numbers and introduce FY16 earnings at RM28mil.

- Pending a meeting with management, our assumptions and BUY call are maintained for now.

- Balance sheet remains solid, with a debt-free position and a cash pile of RM24mil as at end-FY13.

- At the current level, the stock is trading at 14x FY14F PE, below its 5-year historical PE of 18x.

Source: AmeSecurities