- Expecting 2012 to be a good year. The group reported a commendable 1H12 revenue and net profit of RM110.7m and RM12.3m respectively with YoY growth rates of 34.0% and 61.6%. The former was mainly due to the increase in the selling price and volume of fruit gummy and beverage products while the latter was attributable to an improved production efficiency from the increased automation in its manufacturing, as well as, lower material costs. 

- Tremendous growth opportunity going forward.  The group is in the midst of expanding its hard candy & fruit gummy capacities by 4.6x and 2.6x from their existing capacities, which will be ready by 4Q12 and 1Q13, respectively. We believe these products, including  beverage, will continue to be the main drivers for its revenue as the products have registered 2-year CAGR of 37.3%, 5.4% and 123.3%, respectively.    

- Another major growth driver is the export market. Management aims to grow the contribution from exports by increasing  advertisement and promotional activities in the regional markets, especially in China, Vietnam and Jakarta.  

- Other potential drivers.  The group is also constructing a new factory for the manufacturing of chocolates and wafers with a production capacity of 4m kg, which is expected to be commercialised in early-2015. Currently, these products contributed about 10% to the 1H12 revenue and we believe it will continue to grow organically over the years. Besides, the group is also planning to sign up a few franchise businesses to maximize the utilisation rate of the new capacity from FY13 onwards. 

- Decent yield?  The group has been paying out approximately 50% earnings as dividends in the past. We reckon that it has the intention to keep paying the same ratio, which should work out to a decent yield of 3.1% in FY13. 

- 17% potential upside.  In the past two years, the stock has been trading above its 5-year average Forward PER of 15.1x, and once traded above the +2SD-level. While the stock is trading at 15.9x now, we believe there is still more potential upsides ahead due to all the reasons above. As such, we have valued the stock at RM3.06, based on our projected FY13 EPS of 16.7sen on a PER of 18.3x, which is just the +0.5SD above the average PER.  

- Resistance: RM2.69 (R1), RM2.85 (R2)

- Support: RM2.55 (S1), RM2.45 (S2)

- Comments: Cocoaland's share price has been trading sideways following the run-up in mid-September. We believe the share price is merely pausing for breath in an overall bullish uptrend and investors should look to buy into weakness, preferably closer to RM2.55. 

Cocoaland Holdings Berhad was incorporated on 6 June 2000 and was subsequently listed on 18 January 2005. Cocoaland Holdings Berhad operates in the business of manufacturing and trading of processed and preserved foods and other related foodstuffs. The company's products include candy, canister, cookies, drinks, gummy, hamper, juice, pudding and jelly, snack and wafer.

- Cocoaland manufactures for the OEM market. Its manufacturing arm is housed in 5 factories in Rawang, Kepong and Kampar  for its house brand and the OEM market. The OEM products are distributed to reputable manufacturers such as GSK, Ribena, Nestle and Wrigley.

- It mainly focuses on 3 industrial food categories (snack food, chocolate & sugar confectionery and soft drinks) under its proprietary brands like Lot100, Koko Jelly, CocoPie, Rotong, Mite and Fruit10.

Source: Kenanga