Oceancash’s 2Q17 revenue increased by 5.1% yoy, on the back of higher sales from the hygiene segment. However, net profit fell 6.9% yoy from RM2.7m in 2Q16 to RM2.5m in 2Q17 due to higher operational costs (+7.3% yoy). 1H17’s net profit constitutes 38% of our and consensus estimates. The Group has secured another new customer in the hygiene segment. We maintain our BUY call with an unchanged target price of RM0.88 based on an unchanged PE of 15.5x.

2Q17 Results: Net Profit Down 6.9% Yoy

Oceancash reported 2Q17 revenue of RM22.1m (+5.1% yoy), driven by stronger revenue growth from the hygiene (+18.0% yoy). However, the insulation division fell by 14.6% yoy due to lower demand from Indonesia (-28.0 yoy). For the hygiene segment, exports to Japan increased by 17.3% yoy (2Q16: RM6.4m vs. 2Q17: RM7.5m). We expect revenue from hygiene products to remain stable as their products are used as back sheets in baby diapers and sanitary napkins, which are consumer staples products.

Net Profit Up 22.6% Qoq

On a sequential basis, the revenue increased slightly by 0.9% qoq; Nevertheless, net profit increased significantly by 22.6% qoq. Net profit for the hygiene segment increased sharply by 8.6pps (1Q17: 5.5% vs. 2Q17: 14.2%), whilst the net profit for the insulation segment fell by 75.6% qoq. The sharp increase in net profit from the hygiene segment is due to improved efficiency from the utilization of a spooling machine. The company has also secured another new customer for the hygiene segment; therefore, we remain positive on the demand for nonwoven products.

Maintain BUY With An Unchanged TP of RM0.88

Earnings are broadly in line with expectations and we expect 2H17 to be stronger with better contribution from the new customer. We maintain our BUY rating on Oceancash with TP of RM0.88 based on an unchanged 2018E PER of 15.5x. We think the company’s growth potential in the near term will be driven by the increasing demand from the premium-quality hygiene products.

Source: Affin Hwang Research - 25 Aug 2017