Results Report 

YTD 3Q FY17 total revenue decreased 2.1% vs YTD 2Q FY16; local sales decreased by 4.7% whilst overseas sales increased by 0.2% over the same period. YTD 3Q FY17 operating margins came in at 15.3% vs 17.0% in YTD 3Q 2016. Export sales now account for about 55% of total sales up from about 50% earlier in the year. Local sales are weakening as consumers are turning more cautious. YTD 3Q FY17 PBT decreased 10.8% vs YTD 3Q FY16 mainly due to lower demand for beverage and hard candy products, coupled with higher materials and packaging costs. Factory labour costs were also higher relative to last year.

Investment Risks

Risks to our recommendation and target price include: i) rising trends in material costs, ii) an increase in the general level of interest rates, iii) an increase in the USDMYR exchange rate, and iv) a sharp slowdown in the general level of economic activity in Malaysia or in the economies of the company's major 'own brand' export markets - China/HK and the Middle East. 

Recommendation

We maintain our HOLD recommendation on Cocoaland Holdings Bhd and reduce our fair value to MYR 2.78. It is possible that the share price will surprise on the upside; sales growth and capacity utilisation may accel-erate more quickly than we expect. Cocoaland has very little debt on the balance sheet as well as plenty of cash. Cocoaland has a clean balance sheet and a good record of growing overseas sales. The top three overseas market regions are Eastern Asia, Southeast Asia and Middle East. However, consumer sentiment is visibly weaker in many coun-tries, including Malaysia. In addition, export sales appear to be softening in many of Cocoaland's export markets. 

Company Profile

Cocoaland Holdings Bhd is ranked approximately in the middle of the thirty listed companies in the Malaysian snack food industry. The com-pany is one of the few home grown Malaysian consumer firms that have successfully penetrated regional markets. Cocoaland Holding's pred-ecessor company, MFESB, was formed in 1980. This company and others were consolidated and converted to a public limited company in 2000 under the name Cocoaland Holdings Bhd, prior to listing in 2005. Cocoaland has been quite successful with its fruit gummy line, which remains an affordable small luxury snack in this difficult economic times.

Source: Wilson & York Securities Research - 27 Nov 2017