COCOALAND HOLDINGS BUY. 9MFY15: On track for a record year. Company report. (Maintained) CONSUMER

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1 CONSUMER COCOALAND HOLDINGS (COLA MK EQUITY, CCLD.KL) 26 Nov 2015 Company report Cheryl Tan, CFA MFY15: On track for a record year Rationale for report: Company result BUY (Maintained) Price Fair Value 52-week High/Low Key Changes Fair value EPS RM2.04 RM2.60 RM2.27/RM0.97 YE to Dec FY14 FY15F FY16F FY17F Revenue (RM mil) Core net profit (RM mil) FD Core EPS (sen) FD Core EPS growth (%) (0.6) Consensus Net Profit (RM mil) DPS (sen) PE (x) EV/EBITDA (x) Div yield (%) ROE (%) Net Gearing (%) Net cash Net cash Net cash Net cash Stock and Financial Data Shares Outstanding (million) Market Cap (RMmil) Book Value (RM/share) 0.95 P/BV (x) 2.1 ROE (%) 10.3 Net Gearing (%) - Major Shareholders Leverage Success Sdn Bhd (38.0%) Fraser & Neave Holdings (27.2%) Free Float 22.7 Avg Daily Value (RMmil) 0.6 Price performance 3mth 6mth 12mth Absolute (%) Relative (%) Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 COLA MK PP 12247/06/2013 (032380) FBMKLCI Index 2,000 1,800 1,600 1,400 1,200 1, Investment Highlights We reiterate BUY on Cocoaland Holdings with an upward revised fair value of RM2.60/share (ex-bonus) as we roll forward our valuation base to FY16F. We continue to peg our valuation to a target PE of 18x over FY16F EPS. Note that the stock had traded ex-bonus (1-for-3) on 9 November with the entitlement date on 12 November. The exercise, which was announced in August, had enlarged the group s outstanding number of shares of 50 sen by 57.2mil to 228.8mil shares. Cocoaland s 9MFY15 results were in line with our expectations. It reported a 3QFY15 net profit of RM6.6mil (QoQ: -13%; YoY: +56%) to extend its 9MFY15 earnings to RM22.1mil (YoY: +83%). More positively, we note that Cocoaland maintained the quantum of its second interim single-tier dividend at 2.5 sen/share despite the bonus issuance. This, together with the first interim and special dividend totaling 22.5 sen/share in 2QFY15 and our expectation of a final dividend of 2.5 sen/share in 4QFY15, translate to an attractive FY15F yield of 13.5%. The group s cumulative 9M revenue was flat YoY as the incremental contribution from higher local and overseas demand for its gummy and snacks was offset by lower beverage product volumes from its contract manufacturing business. Nevertheless, its 9MFY15 net profit had jumped by 83%, thanks to the 6.6-ppt expansion in its EBIT margin to 16%. Contributing to this was its improved sales mix, lower raw material prices (namely sugar and cocoa powder), lower advertisement and freight expenses, and favourable forex exposure. On a sequential basis, Cocoaland s top and bottom line were lower by 4.5% and 11.3%, following the drag in its beverage division and higher marketing spend. Looking ahead, we expect Cocoaland s upward earnings growth trajectory (3-year CAGR of 18%) to remain intact, underpinned by new capacity for its fruit gummy and hard candy as well as positive impact from the stronger USD vis-à-vis the RM (export sales account for 55% of revenue with 80% of that being denominated in USD). The stock is currently trading at undemanding FY15F- FY16F PEs of 14x-15x (~0.5SD below its 5-year mean). We believe Cocoaland deserves to trade at a higher multiple given its strong fundamentals, franchise value and positive earnings growth momentum. Valuations are also supported by its position as a takeover target and exporter in a defensive sector (F&B). Maintain BUY.

2 EXHIBIT 1: RESULTS SUMMARY YE 31 Dec 3Q14 2Q15 3Q15 %QoQ %YoY 9M14 9M15 %YoY Revenue (RMmil) (4.5) (7.6) EBIT (11.4) Net interest Pre-exceptional profit Exceptional Associates Pretax profit (RMmil) (11.4) Taxation (2.5) (2.9) (2.7) (5.5) (8.1) Minorities Forex gain / (loss) Net profit (RMmil) (13.0) Core net profit (RMmil) (13.0) EPS (sen) Gross DPS (sen) BV / Share (RM) EBIT margin (% ) (1.2) Pretax margin (% ) (1.2) Effective tax rate (% ) (8.3) (4.5) Source: Company, AmResearch AmResearch Sdn Bhd 2

3 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Cocoaland Holdings 26 Nov 2015 EXHIBIT 2: PB BAND CHART EXHIBIT 3: PE BAND CHART δ Avg -1δ δ Avg -1δ AmResearch Sdn Bhd 3

4 EXHIBIT 4: FINANCIAL DATA Income Statement (RMmil, YE 31 Dec) FY13 FY14 FY15F FY16F FY17F Revenue EBITDA Depreciation/Amortisation (11.8) (10.8) (10.5) (10.3) (10.2) Operating income (EBIT) Other income & associates Net interest (0.1) - Exceptional items Pretax profit Taxation (7.2) (8.7) (9.5) (10.4) (11.4) Minorities/pref dividends Net profit Core net profit Balance Sheet (RMmil, YE 31 Dec) FY13 FY14 FY15F FY16F FY17F Fixed assets Intangible assets Other long-term assets Total non-current assets Cash & equivalent (3.1) Stock Trade debtors Other current assets Total current assets Trade creditors Short-term borrowings Other current liabilities Total current liabilities Long-term borrowings Other long-term liabilities Total long-term liabilities Shareholders funds Minority interests BV/share (RM) Cash Flow (RMmil, YE 31 Dec) FY13 FY14 FY15F FY16F FY17F Pretax profit Depreciation/Amortisation Net change in working capital 12.8 (15.6) (3.9) (6.9) (7.2) Others (15.8) (15.4) (72.4) (27.6) (28.6) Cash flow from operations (26.2) Capital expenditure (40.3) (3.1) (8.0) (8.0) (8.0) Net investments & sale of fixed assets Others - (0.1) Cash flow from investing (40.3) (3.2) (8.0) (8.0) (8.0) Debt raised/(repaid) Equity raised/(repaid) Dividends paid Others Cash flow from financing Net cash flow (2.3) 7.3 (34.2) Net cash/(debt) b/f (3.1) 8.1 Net cash/(debt) c/f (3.1) Key Ratios (YE 31 Dec) FY13 FY14 FY15F FY16F FY17F Revenue growth (%) EBITDA growth (%) Pretax margin (%) Net profit margin (%) Interest cover (x) nm nm nm nm Effective tax rate (%) Dividend payout (%) Debtors turnover (days) Stock turnover (days) Creditors turnover (days) Source: Company, AmResearch estimates AmResearch Sdn Bhd 4

5 Published by AmResearch Sdn Bhd ( P) (A member of the AmInvestment Bank Group) 1 5 t h F l o o r B a n g u n a n A m B a n k G r o u p 55 Jalan Raja Chulan Kuala Lumpur Tel: ( 0 3 ) ( r e s e a r c h ) F a x : ( 0 3 ) Printed by AmResearch Sdn Bhd ( P) (A member of the AmInvestment Bank Group) 1 5 t h F l o o r B a n g u n a n A m B a n k G r o u p 55 Jalan Raja Chulan Kuala Lumpur Tel: ( 0 3 ) ( r e s e a r c h ) F a x : ( 0 3 ) The information and opinions in this report were prepared by AmResearch Sdn Bhd. The investments discussed or recommended in this report may not be suitable for all investors. This report has been prepared for information purposes only and is not an offer to sell or a solicitation to buy any securities. The directors and employees of AmResearch Sdn Bhd may from time to time have a position in or with the securities mentioned herein. Members of the AmInvestment Group and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein. The information herein was obtained or derived from sources that we believe are reliable, but while all reasonable care has been taken to ensure that stated facts are accurate and opinions fair and reasonable, we do not represent that it is accurate or complete and it should not be relied upon as such. No liability can be accepted for any loss that may arise from the use of this report. All opinions and estimates included in this report constitute our judgement as of this date and are subject to change without notice. For AmResearch Sdn Bhd Benny Chew Managing Director AmResearch Sdn Bhd 5