- We reaffirm our HOLD recommendation on Cocoaland Holding Bhd with an unchanged fair value of RM2.00/share, based on our DCF valuation.

- Cocoaland reported 2QFY14 net profit of RM4.4mil, bringing 1HFY14 net profit to RM7.9mil.

-  While 1HFY14 only accounted for 41% of our full-year forecasts, we deemed the results to be in line with expectations given that 1H is seasonally softer due to the absence of festive seasons and the early Chinese New Year this year.

-  Similarly, 1HFY13 earnings only accounted for 38% of its full-year earnings of RM22mil.

-  Cocoaland declared a first interim single-tier dividend of 5% per ordinary share or 2.5sen during the quarter.

-  1HFY14 revenue declined 3% YoY mainly due to a decrease in trading volume for its contract manufacturing business of beverage production line.

-  EBIT margins shrank by 0.2ppts to 8.7% arising from higher product advertisement particularly for gummy, Chocopie and beverage products, and promotional expense incurred.

-  Compared to 1QFY14, the revenue increase of 10% is contributed mainly by the higher export of gummy and beverage products.

-  Given the expectation of a slowdown in consumer spend and a more challenging operating environment in Malaysia, the group’s focus will remain on overseas market, particularly China. Export market contributes to more than 60% of the group’s revenue.

-  Looking ahead, we reckon that potential synergies could materialise with its indirect strategic partner, Thai Beverage, given Cocoaland’s PET-bottling plant business.

-  As it is, Thai Beverage has been cross-selling its products since last year through Fraser & Neave Holdings (F&N), which holds a 27% stake in Cocoaland.

-  Balance sheet remains healthy supported by its debt-free position. The group sits on a cash pile of RM6mil, as at end-1HFY14.

-  At current level, the stock is trading at an FY14F PE of 16x, below its 5-year historical mean of 18x.

Source: AmeSecurities