Stock Name: COCOLND
Company Name: COCOALAND HOLDINGS BHD
Research House: AMMB



AmResearch has maintained its "Buy" recommendation on Cocoaland Holdings Bhd, but with a lower fair value of RM3.30 per share from RM3.70 per share previously.

The price was derived after incorporating lower margin assumptions from the higher cost of raw material.

In a research note today, AmResearch also trimmed the company's earnings forecast for the financial years from 2010 to 2012 by 13 per cent to 15 per cent, taking into account upward adjustments in sugar and packaging material costs.

These raw materials constitute close to 45 per cent of the group's cost structure.

"The Malaysian government raised sugar price by 21 per cent to RM2.10 per kg on December 6, 2010, while packaging materials have surged 10 per cent in the last 3-4 months, in tandem with higher crude oil prices," AmResearch explained.

"While the unfavourable cost structure would result in weak earnings in the next few quarters, FY11F earnings would be well cushioned by eventful earnings contribution from its maiden 'hot-filling' PET production line," AmResearch elaborated.

Recently, the group through its wholly-owned subsidiary, Cocoaland Industry Sdn Bhd (CISB), entered into separate contract packing agreements with F&N Beverages Manufacturing Sdn Bhd (F&NBM) and F&N Foods Pte Ltd (F&NF), as a non-exclusive contract packer for the preparation, packaging, packing and delivery of their respective products.

"We are positive about these developments. The formalisation of the contract packing agreements will underpin Cocoaland's robust earnings growth going forward, as secured high off-take rates by Fraser & Neave Holdings (F&N) will serve to truncate idle capacity," AmResearch said.

At 3.00pm, Cocoaland share was up 13 sen at RM2.75. -- Bernama