Cocoaland Holdings Bhd (Nov 23, RM2.00)
Maintain underperform at RM2 with revised target price of RM1.76 (from RM1.88): We cut our FY11 forecast as 9MFY11 core net profit was 12% below expectations due to a weaker ringgit. We maintain our “underperform” call. Though we still value the stock at a 10% discount to our target market price-earnings ratio, we cut our target price as we roll it forward and use 11.3 times CY13 PER (previously 13 times CY12).
Cocoaland’s 3QFY11 net profit was down 33.3% quarter-on-quarter, mainly due to a weakening of the ringgit from RM2.93 per US dollar in July 2011 to RM3.20 in early October. This crimped export earnings (50% of total revenue), which are mainly denominated in the greenback. No interim dividend was declared, which was within expectations.
Cocoaland should experience some profit margin recovery from 4QFY11 onwards as it is looking to raising export selling prices to offset the ringgit depreciation. Even then, we think that Cocoaland will have difficulty meeting our FY11 earnings per share forecast, which we now scale back. Our FY12/FY13 forecasts are unchanged.
Its new warehouse and factory are under construction and are likely to be completed by end-1H12. They will boost the company’s annual capacity by 50% to 6,700 tonnes for fruit gummies and double its cocopie capacity to 6,000 tonnes. Its PET hot bottle annual capacity will also double to 240 million. However, it might take some time for the company to ramp up utilisation of the new factory. We expect the full impact of the expansion to come through in FY14.
Cocoaland’s valuation is still not cheap. Investors should switch to large-cap consumer stocks like QSR Brands Bhd which are at more attractive ratings. — CIMB Research, Nov 23
This article appeared in The Edge Financial Daily, November 24, 2011.
Maintain underperform at RM2 with revised target price of RM1.76 (from RM1.88): We cut our FY11 forecast as 9MFY11 core net profit was 12% below expectations due to a weaker ringgit. We maintain our “underperform” call. Though we still value the stock at a 10% discount to our target market price-earnings ratio, we cut our target price as we roll it forward and use 11.3 times CY13 PER (previously 13 times CY12).
Cocoaland’s 3QFY11 net profit was down 33.3% quarter-on-quarter, mainly due to a weakening of the ringgit from RM2.93 per US dollar in July 2011 to RM3.20 in early October. This crimped export earnings (50% of total revenue), which are mainly denominated in the greenback. No interim dividend was declared, which was within expectations.
Cocoaland should experience some profit margin recovery from 4QFY11 onwards as it is looking to raising export selling prices to offset the ringgit depreciation. Even then, we think that Cocoaland will have difficulty meeting our FY11 earnings per share forecast, which we now scale back. Our FY12/FY13 forecasts are unchanged.
Its new warehouse and factory are under construction and are likely to be completed by end-1H12. They will boost the company’s annual capacity by 50% to 6,700 tonnes for fruit gummies and double its cocopie capacity to 6,000 tonnes. Its PET hot bottle annual capacity will also double to 240 million. However, it might take some time for the company to ramp up utilisation of the new factory. We expect the full impact of the expansion to come through in FY14.
Cocoaland’s valuation is still not cheap. Investors should switch to large-cap consumer stocks like QSR Brands Bhd which are at more attractive ratings. — CIMB Research, Nov 23
This article appeared in The Edge Financial Daily, November 24, 2011.
