Cocoaland expected to beat consensus estimates in upcoming results

KUALA LUMPUR: RHB research expects Cocoaland Holdings Bhd's earnings to beat consensus expectations as cost pressure recedes and capacity expansion should drive earnings growth in the medium term.

The research house maintained its buy call on the counter with a higher target price of RM3.10 from RM2.70 previously.

In a note published on Thursday, RHB said Cocoaland could end eight consecutive quarters of year-on-year (y-o-y) earnings decline with the upcoming 2Q19 results.

It said robust gummy sales should cushion the impact of softer contribution from beverages while it also expects cost savings from lower raw material costs and wage costs.

Gummy capacity will increase 30% to about 12 million kg per annum starting April 2020.

"We believe the risks in ramping up production are low given overwhelming demand for gummy products," said RHB.

Year to date, the price of its key raw material, sugar, dropped about 6% y-o-y while packaging costs have been relatively stable, it added.

The group's automation drive has also reduced overtime hours required for production, and the research house expects Cocoaland to continue investing in automation technology.

"This, together with a stronger USD/MYR, should propel earnings growth of 22-57% as we expect 2Q19’s net profit to be in the range of MYR7-9m, and be ahead of consensus forecasts," it said.