Cocolnd broke above its horizontal resistance at RM2.45

Background

Cocoaland Holdings Berhad (Cocolnd) is involved in the manufacturing and trading of processed and preserved foods and other related foodstuffs. Its products include candy, canister, cookies, drinks, gummy, hamper, juice, pudding and jelly, snack and wafer.

It is an associate company of Fraser & Neave Holdings Bhd (F&N). F&N acquired a 23%-stake in Cocolnd in 2010 for RM54.6 million (or RM1.38 per share). F&N's CEO explained that the acquisition "provides it with a strategic and synergistic foothold to advance its aspirations to create a regional, world-class food and beverage enterprise". (Note: The stake in Cocolnd owned by F&N has since increased to 27.2%.)


Latest Corporate Development

As Thai Beverage Public Company Ltd ('ThaiBev') has acquired a 30.36%-stake in Fraser & Neave Ltd in Singapore- which in turn owns 56.3% of F&N- ThaiBev is now deemed to have interest in Cocolnd. There are many reports that raised the possibility of ThaiBev making a conditional GO for Cocolnd but I personally do not think this will happen.

Recent Financial Results

The latest quarterly results shows Cocolnd has done very well for 1st half FY2012. For QE30/6/2012, its net profit increased by 48% q-o-q or 73% y-o-y to RM7.3 million while revenue increased by 13% q-o-q or 35% y-o-y to RM58.8 million.


Table 1: Cocolnd's last 8 quarterly results

We can see from Chart 1 below that Cocolnd's top-line & bottom-line have been rising steadily since early 2011. Its profit margin bottomed in QE30/6/2010 & has been recovering steadily.


Chart 1: Cocolnd's last 18 quarterly results

Financial Position

Cocolnd's financial position is deemed healthy. As at 30/6/2012, its Current Ratio stood at 3.8 times, with no borrowings and a cash reserves RM43 million (or,  cash backing of RM0.23 per share).

Valuation

Cocolnd (closed at RM2.46 yesterday) is now trading at a PE of 17.7 times (based on last 4 quarters' EPS of 13.91 sen). At this PE, Cocolnd is deemed fully valued.

A recent CIMB report rated Cocolnd as underperform with a target price of only RM1.84 (here)

Technical Outlook

Cocolnd broke above its intermediate downtrend line, R1-R1 at RM2.20 at the beginning of 2012. Since then, its upside has been capped by the horizontal line at RM2.45. Today, it broke above the horizontal resistance of RM2.45. This means the stock could revisit its recent high at RM3.10.

 
Chart 2: Coclnd's weekly chart as at Sept 14, 2012 (Source: Tradesignum)

Conclusion

Based on good financial performance, healthy financial position & its exposure to the consumer sector, Cocolnd could be a good stock for long-term investment. Its bullish technical outlook could make the case for a trading BUY for the stock but we have to be careful as the stock is now overvalued & the current rally could be brought on by expectation of a GO from ThaiBev, which is not very likely.


Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Cocolnd.