Kenanga Research downgrades Cocoaland to Trading Sell, cuts target price

Business & Markets 2013
Written by Zatil Husna of theedgemalaysia.com
Tuesday, 10 December 2013 12:18
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KUALA LUMPUR (Dec 10): Kenanga Research has downgraded
Cocoaland Holdings Bhd to “trading sell” from “trading buy” with a lower
target price of RM2.23 (from RM2.76) and said the company lacked
near-term catalysts.
In a note Tuesday, the research house has also lowered its net profit
forecasts for 2013 (FY13) and 2014 (FY14) on Cocoaland by 33% and
35% (to RM18.5 million and RM22.4 million) respectively, after the
group’s nine months result (9MFY13).
Kenanga said the downgrade and revised target price was on the back
of the group’s lack in near-term catalysts.
“The contribution from beverages is likely to decline as a short-term
client would withdraw its orders, implying a better group margin in FY14
“This is due to the recovery of the client’s plant which was earlier
affected by flood in Thailand,” it said.
Despite lacking in near-term catalysts, the research firm expects better contribution from Cocoaland’s products such as
gummy, coco pie and chocolate, which will improve its margin.
“Hence, we project slightly better net margin of 8.2% for FY14E as compared to 7.4% for FY13E,” it added.
But Kenanga remains cautious of the group’s outlook due to higher cost in operating costs, accounting sugar subsidies and
electricity hike.
“However, the outlook remains challenging across the board due to the inflated cost of production such as petrol prices.
“We understand the impact of sugar subsidies cut and electricity hike are minimal to the company. However, we still remain
cautious on potential higher operating costs in the future that may erode its profitability,” the research house said.