1Q17 Results in Line With Expectations

Oceancash 1Q17 revenue increased by 18.0% yoy and net profit increased by 72.6% yoy, on the back of higher sales from both hygienic and insulation divisions. We roll forward our valuation to 2018E EPS, resulting in higher target price of RM0.88 based on an unchanged PE of 15.5x. With results in line with our estimates, we maintain our earnings forecast.

1Q17 Results: Revenue Up 18.0% YoY, Net Profit Up 72.6% YoY

Oceancash reported 1Q17 revenue of RM21.9m (+18.0% yoy), driven by stronger revenue growth from both the hygiene (+14.4% yoy) and insulation (+24.0% yoy) divisions. The higher earnings contribution from both divisions led to a net profit of RM2.0m in 1Q17 compared to net profit of RM1.2m in 1Q16, implying an increase of 72.6% yoy in net profit.

Demand for Hygiene Products Remains Stable

Oceancash reported higher revenue, due to stronger demand for hygiene products from Malaysia and Japan. Exports of hygiene products to Japan increased by 6.0% yoy (1Q16: RM6.7m vs. 1Q17: RM7.1m). We expect revenue from hygiene products to remain stable as their products are used as back sheets in baby diapers and sanitary napkins.

New Customer in the Automotive Industry

The Group also recorded stronger demand for its insulation products from Malaysia, Philippines and Indonesia. The Group has recently secured a new automotive customer. Demand for insulation products from Indonesia also increased by 30.8% yoy, underpinned by recovery in the automotive sector in Indonesia. A rebound in Indonesia auto sales would benefit Oceancash, as the company is well positioned there with a factory in Jakarta.

Maintain BUY With a New Target Price of RM0.88

We Maintain Our BUY Rating on Oceancash. Our Target Price of RM0.88 implies 2018E PER of 15.5x. We like: 1) the company’s strong growth prospects, especially for premium-quality hygiene products; 2) its strong position to benefit from a pick-up in Indonesia auto sales; and 3) its strong management as reflected by solid financials. Our target price of RM0.88 is based on 15.5x our 2018E EPS, providing 12.6% upside potential

Source: Affin Hwang Research - 29 May 2017