• Reiterate BUY with unchanged TP of MYR2.70, offering 27% upside plus FY19F 5% yield. We remain positive on the stock as future earnings will be driven by the sale of gummy products in domestic and overseas markets. Its 2018 earnings were within expectations at MYR30.9m (-7.8% YoY). We are forecasting earnings growth of 9.8% for 2019. No interim dividend was declared during the quarter.

• Well within expectations. 2018’s earnings of MYR30.9m (-7.8% YoY) were within our and consensus expectations, accounting for 100% and 99% of full-year forecasts. The decline in earnings was mainly attributed to higher labour costs from the implementation of the levy policy on foreign workers, as well as higher raw material costs. No dividend was declared during the quarter. 2018’s total DPS was MYR0.06, below our expectations of MYR0.10, and implying a 44% payout ratio.

• Manufacturing segment PBT grew 88.4% YoY as lacklustre demand for (contract manufacturing) beverage products was offset by robust demand for gummy and hard candy products, as well as a better sales mix and lower overhead costs, which helped to improve margin by 8.3ppts.

• Trading segment however, saw softer demand for snacks and cocopie products from the overseas market, resulting in PBT for the segment dropping 25% YoY to MYR31.4m in 2018. The unfavourable forex trend further worsened performance at the segment.
• Key risks and forecasts. Downside risks for the stock include sharper increases in input costs, and weaker-than-expected consumer sentiment. Being a net exporter, a stronger MYR against the USD will impact the company negatively. Post-results, we made no changes to our forecasts.
• Maintain BUY with unchanged TP of MYR2.70. Our TP is derived from an unchanged target 18x P/E (+1.5SD from its 5-year mean), based on 2019F’s earnings. We like Cocoaland given resilient demand for its gummy products, generous dividend payouts backed by a sturdy balance sheet, healthy cash flow generation, and proven track record. Strong brand equity in both the domestic and overseas markets should also ensure sustainability of its future earnings.

Source: RHB Securities Research - 28 Feb 2019