Wednesday, July 21, 2010

AmResearch initiates coverage of Cocoaland, FV RM3

KUALA LUMPUR: AmResearch has initiated coverage of Cocoaland Holdings with a BUY at fair value of RM3 per share.

It said on Wednesday, July 21 the FV of RM3 was based on target PE of 12x FY11F earnings, pegged to a 10% discount to the average PE for consumer stocks (13x).

Cocoaland is South-East Asia's largest producer of fruit gummies and one of Malaysia's leading confectionery producer of snacks and chocolate food products. The group is now well positioned to leverage on efficiency gains after its successful production automation programme (FY09).

'FY10F will also see an eventful maiden contribution from the group's PET bottle operations with pre-secured OEM orders. Despite major capex totalling RM59mil from FY10F-11F, our earnings model indicates a net cash position, and decent dividend yields of 3%- 5% p.a., premised on the stock's historical dividend payout ratio of 40%,' it said.

AmResearch said Cocoaland's valuation is undemanding, with the stock trading at forward PE of 10x. We like the stock's high ROE of 24% and strong balance sheet (below 1% gearing). Better-than-expected response to the group's soon to-be-launched proprietary tea and fruit-based beverages are potential re-rating catalysts near term,' it said.

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