• Cocoaland Holdings Berhad (Cocoaland) announced that its shares last trading day would be on 20th October 2022 before being suspended on 21st October 2022 onwards until the delisting exercise is concluded.

• All Cocoaland remaining shares acquired by F&N will be transferred to Awana Citra Sdn Bhd (Awana Citra), a subsidiary of F&N Holdings (F&N).

• We deem the offer price of RM1.50/share to be overvalued however given stagnant growth on confectionary market on the back of heightening concern on healthy lifestyle amid rising material costs.

• Maintain a SELL call on Cocoaland with unchanged TP of RM1.22. Our TP is based on average a 3-year historical PER of 18x, pegged to FY23F EPS of 6.8sen.

The Deal is Sealed

Recall that on 3rd June 2022 Fraser & Neave Holdings Berhad (F&N) which owns 27.66% stake in Cocoaland has submitted a proposal to Cocoaland‘s board of director to privatise Cocoaland through acquiring the remaining share of Cocoaland which it does not own. Leverage Success Sdn Bhd (LSSB), the largest shareholder for Cocoaland which is controlled by the Liew and Lau family member, has been given irrevocable and unconditional undertaking to vote in relation to this offer. All remaining shares (72.34% or 325.43mn shares) of Cocoaland acquired by F&N will be transferred to Awana Citra, a subsidiary of F&N. F&N will pay the deal via cash consideration of RM488.15mn or RM1.50/share. The privatisation deal is expected to be concluded this quarter with the announcement.

Our view

The offer price of RM1.50/share which represent 18.7% premium from our target price, is seen as overvalued in view of stagnant growth in confectionary markets. Our justification is backed by consumer concerns on surrounding health issues such as obesity and diabetic that are giving the confectionery market a challenging time thus affecting its demand. Besides, consumer habits, tastes and preference are constantly evolving which could be easily substituted by other confectionaries products. Moreover, the group’s margin may remain compressed following current rising material costs such as sugar and gelatin no thanks to logistics disruptions and global supply chain interruption. Note that raw sugar price has jumped 4.5% YTD to reach USD18.67 per metric tonne versus 2021 average of USD 17.87 per metric tonne and therefore, a challenging time for the sector as well as the group.

Maintain a SELL call with unchanged TP RM1.22

Maintain a SELL call on Cocoaland with unchanged TP of RM1.22 based on average a 3-year historical PER of 18x, pegged to FY23F EPS of 6.8sen. We are cautious on the group’s business outlook given its non-essentials products that are regarded as nonrecession-proof that may face with challenging business environment and higher input costs.

Source: BIMB Securities Research - 10 Oct 2022