- We reaffirm our BUY recommendation on Cocoaland Holdings with an unchanged fair value of RM2.35/share, pegged to FY15F earnings target PE of 16x.

- Cocoaland announced that it had received an offer from HKbased First Pacific Company Limited to acquire its business including all assets and liabilities at RM463.3mil or RM2.70/share.

- This essentially means that Cocoaland would be an empty shell after the sale of business. The proceeds would either be paid back to shareholders in dividends or as capital repayment.

- At the offer price of RM2.70/share, this value the company at FY15F PE of 18xbased on our forecast.

- The offer price is at a 15% premium of our fair value of RM2.35/share and represents a 32% premium to its last traded price of RM2.04/share. As such, we recommend investor to accept the offer as the proposed offer price is fair.

- It is also noted that Cocoaland has not traded at or above the offer price for the past 10 years, the highest being RM2.68/share in July 2010.This is also higher than the first offer made by Navis Asia VII Management Company Ltd of RM2.20/share on 22 May.

- Leverage Success Sdn Bhd (owner of Cocoaland) owns a 38% stake in Cocoaland. First Pacific intends to undertake the proposed acquisition through a special purpose vehicle (SPV), of which Leverage Success intends to acquire a stake in the SPV. Hence, Leverage Success should continue to benefit from Cocoaland’s future profit growth.

- Most significantly, its second largest shareholder, Fraser & Neave Holdings (F&N) holds a 27% stake. F&N had bought into the company back in 2010 at RM1.38/share (96% premium to the offer price then) via a private placement.

- F&N’s support is crucial for the sale of business to go through. First Pacific must have 75% approval from shareholders for its buyout offer for Cocoaland’s business.

- Cocoaland will enter into an exclusive period with First Pacific for six weeks in relation to the proposed acquisition, which is still subject to due diligence exercise. We expect share price to gap up once trading resumes today.

- Moving into FY15, sales volume is expected to remain stable underpinned by the growing penetration of export market (60% of revenue) and strong focus on its own brand products (63% of revenue) which yield higher margin.

Source: AmeSecurities Research - 3 Jun 2015