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Cocoaland Bhd sees its best bet of expanding the business onto the next plateau of growth through organic means as it is spurred by the growing consumer consumption for sugar confectionary candies.
In an interview with StarBizWeek, founder and executive director Liew Fook Meng says that the company's expansion plans for the next few years would open up new capacity for the company to fill and also to leverage on the strength of its substantial shareholder, F&N Holdings Bhd for its beverage business.
“The additional capacity would free up the bottleneck that we have currently as sometimes we are faced by supply constraints when demand picks up,” he says.
Besides planning to spend about RM30mil to set up its sixth factory in Rawang, the company would invest about RM44mil to increase production of its hard candy and fruit gummy confectionery.
This will more than double its total production capacity to 4.6 million kg of hard candy and 11.7 million kg of fruit gummy from the current capacity of one million kg and 4.5 million kg respectively.
In the meantime, Liew is setting his eyes on the bigger picture now and is following closely the developments of the takeover of Singapore-listed F&N by Thai Beverage Plc, one of the largest beverage producers in Asia.
Liew: ‘The additional capacity would free up the bottleneck that we have currently.’
With F&N as its penultimate strategic partner with a 27% stake via F&N Holdings, the developments would have an impact the direction of the company.
Plans are afoot for the group to set up its franchise business model which would see Cocoaland manufacturing and marketing its products under the franchisor's brand name.
“We are still in the negotiation stage with a few well-known international companies, and we expect to sign up a few franchise businesses to start in financial year 2013 after the new lines for gummy and hard candy have been fully-installed and commercialised,” he says.
While Cocoaland is now synonymous with its fruit gummy products under the Lot 100 brand, and its partnership with F&N, the company is looking out for partnerships and work with other food brands.
“Besides F&N, we currently have other clients like GlaxoSmithKline,Ribena, 21st Century, and Coffeebean. We intend to increase penetration in export markets like China, Vietnam and Indonesia with our fruit gummy and CocoPie products,” he says. A wide range of its products are carried by local retail stores, and besides the domestic market, the group has been supplying confectionery to overseas market such as the United States, Japan, Middle East, Hong Kong, Australia and Europe.
The export market's share to the group's overall revenue has increased progressively from 46.5% in financial year 2009 to 54.2% in the first half of 2012.
Cocoaland has a market capitalisation of about RM400mil, and its journey has been one that is synonymous with other success stories.Cocoaland story began when two brothers started out as small time vendors selling deep-fried snacks and banana fritters in the Klang Valley.They got their first break when an acquaintance decided to dispose of his chocolate coating operations.
“That time we don't even have a name yet. And with RM10,000 in hand, we bought his machines and decided to venture into that business,” he says.
The brothers finally got their first break in the mid-1980s when they carved a niche for themselves in the market to manufacture polytubed drinks, which opened doors to the overseas market, and for the first time exporting to the Middle East.
The first factory was set up in Kampar in the 1980s and the second success story came in the form of “Koko Jelly” with its second factory in Kepong to manufacture the chocolate coated jelly that was well-received by the public. Today, the group is managed by 10 siblings.
AmResearch recently reaafirmed its “buy” call on the company, with a higher fair value of RM3.05 per share as it says the group is poised to hit an earnings inflexion point.
It says the group's three-year compounded annual growth rate of 28% will be underpinned by additional production capacities and the deepening in distribution channels.
“We understand plans are afoot for the installation of a new line each for the production of hard candy and fruit gummy to alleviate current supply constraint. Upon commercialisation by first quarter 2013, the new lines are expected to lift installed capacities by 360% for hard candies and 160% for gummies. This potentially translates into an additional RM158mil of revenue per annum,” it says.
For its first half ended June, the company recorded a revenue of RM110.74mil, passing the halfway mark of what it achieved for the entire 2011 at RM173.9mil. Net profit stood at RM12.2mil for the period under review, more than half its net profit of RM19.19mil for year ended 2011.
Its net profit was halved in 2010 to RM9.8mil from RM19.6mil previously due to slower sales, and losses it incurred after terminating a joint-venture production facility in China's Fujian province to manufacture fruit gummy for the China market.