Cocoaland Holdings Bhd
(July 23, RM2.76)
Maintain buy at RM2.85 with fair value of RM3: According to a Bursa Malaysia announcement, Cocoaland Holdings is in the final stages of negotiations with potential partners for a placement of new shares. One of the partners may commence due diligence on the group by next week.
To recap, on July 21 Cocoaland revealed it is in discussions with potential partners to broaden its growth.
The group has since indicated potential new placement of shares at 20% to 30% of its issued and paid-up capital, with completion at end-August.
This latest development is a positive surprise, but we are cautiously optimistic due to insufficient details at this juncture. Stock price has ran up 11% over the last two days, driven by news of potential strategic partner.
The group indicated potential earnings enhancement through product and market development. While any strategic tie-up would be positive for earnings growth, there is risk it may not be immediately accretive.
Commercialisation of the group’s maiden PET bottle operations should commence soon, in August-September 2010, while the commissioning of another PET production line is expected to double total capacity to 240 million bottles per year by end-FY2011F.
Additionally, the installation of a third production line for group’s core product of fruit gummies is underway, boosting total capacity by 60% to 6,700 tonnes upon completion.
Expect acceleration in sales momentum of the group’s Cocopie chocolate on further rollouts to under-penetrated markets.
No change to our earnings forecast and buy recommendation with fair value of RM3, based on PER of 12 times FY2011F earnings, pending further details. Our PER of 12 times is pegged to a 10% discount to the average PER of consumer stocks. — AmResearch Sdn Bhd
This article appeared in The Edge Financial Daily, July 26, 2010.
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