RHB Research has maintained ‘buy’ call on Cocoaland with a new RM 2.45 target price from RM 2.70, with a 30 percent expected total return.
According to the research house, Cocoaland’s 2Q20 earnings are likely to see export sales en route to recovery but local demand should be negatively affected by the Movement Control Order’s (MCO) implementation.
“1Q20 earnings of MYR5.1m (-39% YoY, -62% QoQ) were below our and Street’s expectations, accounting for 14% of full-year forecasts. The negative variance was mainly attributed to Covid-19’s worse-thanexpected impact on gummy products demand, particularly in China and South Korea,” it said.
Additionally, packaging costs are likely to remain suppressed in the near term due to low crude oil prices and potential resin oversupply in the market. Sugar prices, which contribute 10 percent of material costs, also remain low after a sharp decline earlier this year.
“We cut our FY20-22 earnings by 13 percent, 10 percent, and 10 percent, imputing more conservative sales and margins assumptions. The pandemic’s impact is worse than our initial expectation,” RHB Research said.
“Key risks to our call and earnings forecasts include a sharp rise in raw materials costs, stronger RM/USD, and further delays in the commissioning of new production lines.”
