KUALA LUMPUR: Cocoaland Holdings Bhd, which recorded a surge in revenue in the final quarter of 2021, is expected to continue benefitting from the normalisation in demand as international borders reopen and the economy recovers.

       In its inaugural coverage of the stock, AmInvestment Bank research said the candy maker is expected to see earnings growth, especially in the export segment.

       It said Cocoaland has experienced robust demand due to its strong in-house brand presence in the confectionery market after years of brand building.

       "The resiliency of the group’s profitability is also attributed to its well-diversified revenue base due to its variety in product offerings and presence in more than 16 export markets.

       "The business is also complemented by contract manufacturing orders (31% of total sales in 2021) from reputable multinational corporations which offer recurring order flows," it added.

       In 4Q21, Cocoaland's revenue jumped 24% year-on-year following the easing of movement restrictions, doubling its net profit over the previous year to RM8.8mil.

       "Driven by the normalisation of demand and a pick-up in the utilisation rate of its new gummy capacity, we are forecasting a three-year net profit CAGR of 24% to RM42.1mil in 2024F. This is on the back of a three-year CAGR revenue of 10%.

       "Our gross margin assumptions are flattish throughout 2022F–2024F at 29% with the view that high raw material prices may be offset by ASP revision and improved operating leverage," said AmInvestment.

       It expects the group to maintain an average dividend payout of 60% on the back of health operating cash flows and a sturdy balance sheet.

       "This translates into decent DPS of 4 sen (3.7% yield) in 2022, 4.5 sen (4.1%) in 2023, and 5 sen (4.6%) in 2024," it said.

       Cocoaland currently trades at an attractive ex-cash FY22F PE of 14x vs the KL Consumer Product Index’s 12-month forward PE of 20x, Power Root’s 31x and QL Resources’ 57x.

       AmInvestment said this is unjustified given the strong earnings recovery projections for the next three years (2022–2024F earnings CAGR of 24%), on the back of the wider economic recovery and contribution from the new gummy production line, together with a compelling dividend yield of 4%.

       The research firm initiated coverage on the stock with a "buy" call and fair value of RM1.37 a share.