Proposed Acquisition Of Cocoaland
F&N has proposed to acquire Cocoaland. The offer price of RM1.50/share values
Cocoaland at 19.7x 2023F PE. We think this is lofty, given its peers’ trading at 13.1x and
Cocoaland’s unconvincing historical growth. That said, the acquisition utilises idle
cash. While the proposal is dilutive to near-term valuations, we upgrade F&N to a BUY.
The recent selldown has carved out an attractive reward-to-risk payoff. Target price
lowered to RM23.60 from RM26.10.
• Offer price of RM1.50/share, cash consideration of RM488m. Fraser & Neave Holdings
(F&N) has proposed to privatise the remaining shares (72.3%) of Cocoaland (COLA MK,
NR) it does not own for RM1.50/share. The total cash consideration of the proposed
privatisation is approximately RM488m.
• To complement F&N’s halal packaged food pillar. Cocoaland is involved in the
manufacturing and trading of snack products. The rationale for the acquisition is in line with
F&N’s ambition to build its halal packaged food as its fourth pillar of growth. F&N believes
that the addition of Cocoaland will enhance its expansion in the overseas markets.
• Perplexing proposition. Currently, close to 50% of Cocoaland’s revenue is export-driven,
predominantly to Asia. However, its 10-year revenue CAGR (2012-22F) is -0.1%. It is
unsurprising given that the snacks and sweets market is typically dominated by key giants
and also faces headwinds in terms of a structural shift away from the consumption of
unhealthy snacks and sweets. Cocoaland’s ranges of products do not appear
complementary to F&N’s existing products of cooking condiments and seasoning. However,
they could leverage on each other’s existing distribution network to lift sales. Nevertheless,
we struggle to find the appeal of the acquisition and tangible synergies to justify the
significant premium on the offer price for Cocoaland.
• Lofty premium. The acquisition implies a forward PE of 23.4x and 19.7x to 2022-23
respectively based on consensus’ estimates. This represents a 51% premium to its FMCG
peers (2023: PE of 13.1x) under a market capitalisation of less than RM1b. Furthermore,
Cocoaland’s 5-year PE mean is 14.5x. On an EV/EBITDA basis, the offer price implies 9.7x
to 2023. It is at a 30% premium to its peers (7.5x). Based on these financial comparables,
the offer premium for Cocoaland appears lofty.