Cocoaland story began when 2 brothers started out as small time vendors selling deep-fried snacks & banana fritters in the Klang Valley. They were later joined by other brothers & moved upstream in their business activities in order to benefit from higher margins.
Mite Food Enterprise Sdn. Bhd. was formed in 1980 as a manufacturing and distributing company. Success finally came in the mid-1980s when the brothers successfully identified a market opportunity for the manufacture of polytubed drinks, which enable the company to venture into the overseas market for the first time, exporting to Middle East, and purchase their own factory, where the group's 2nd sucessful product 'Koko Jelly' was produced. Today Cocoaland Holding Group is managed by 10 siblings.
Cocoaland Industry Sdn. Bhd., which is located in Rawang & Kepong, Selangor Darul Ehsan, is the principal manufacturing arm of the Cocoaland Holding Group, manufacturing mainly chocolates, hard candy, fruit gummy, cookies, wafer, snack and beverage, whilst LB Food Sdn. Bhd., which is located in Rawang, Selangor Darul Ehsan, is the primary trading arm & is responsible for export market of the Cocoaland Holding Group. B Plus Q Sdn. Bhd. which is located in Kampar, Perak Darul Rizuan, mainly manufactures soft drinks, wafer rolls, peas, nuts, jelly cups, snacks & cracker.
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). Demand for fruit gummy led by China's double digit volume growth. It intends to focus on its export markets i.e China, Vietnam, Indonesia.
Yield are attractive (FY15: 13% including a 20 cents special dividend) given it debt free position and absence of any major capex in next 2-3 years. Its domestic sales were not directly impacted by GST.
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).
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