- 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 9MFY14 core earnings of RM12mil. Although the 9MFY14 results accounted for 61% of our full-year estimates of RM19.5mil, the results are deemed in line given a seasonal strong 4Q.

- Historically, 4Q is typically the strongest underpinned by festivities season. As such, we expect Cocoaland’s full-year FY14 results to come in line with our estimates.

- Cocoaland declared a second interim single-tier dividend of 2.5sen. This brings total dividend declared to-date to 5.0sen.

- Earnings had declined YoY (-14%) mainly due to the decrease of sales of beverage from the contract manufacturing business and higher product advertisement and promotional expenses incurred.

- The higher advertisement for its gummy, Chocopie and beverage products led to an EBIT margin compression of 0.9ppt to 9.3%.

- The higher revenue YoY was mainly achieved from the stronger demand of gummy for both local and export markets, particularly in China, accounting for 17% of 9M’s total export revenue (proprietary brands only), after Indonesia of 18%.

- We expect contributions from China to continue growing underpinned by its aggressive expansion as evidence by its recent advertisement campaign on China’s MTR stations.

- The other key export market for Cocoaland is Indonesia where the group is in the midst of obtaining the required license.

- We are maintaining our EPS estimates for now. A key upside to our earnings estimates is the favorable USD currency, given more than 60% of Cocoaland’s revenue derives from the export market.

- Based on our ground checks, we understand that Fraser & Neave (F&N) is looking to manufacture Thai Beverage’s Oshi drinks domestically. Synergies could potentially materialise with Cocoaland, we believe, given its PET-bottling plant and F&N’s 27% stake in Cocoaland.

- The stock is currently trading at forward PE of 14x, below its historical mean trend of 18x.

Source: AmeSecurities