Oceancash’s 3Q17 and 9M17 revenue increased by 13% and 12% yoy respectively, on the back of higher sales from the hygiene segment. Although 9M17 net profit constituted 64% of our and consensus’ fullyear estimates, results are within expectations as we expect contribution from a new major customer to spur earnings in the hygiene segment. We reiterate our BUY call and target price of RM0.88, based on an unchanged 2018E PER of 15.5x.

3Q17 Results: Revenue Continues Trending Upwards

Oceancash reported a 3Q17 revenue of RM23.3 (+12.9% yoy), mainly driven by stronger revenue growth from the hygiene segment (+19.9% yoy). However, the insulation division was flat at +0.4% yoy due to lower demand from Indonesia offsetting sales growth in Philippines and Thailand. For 9M17, revenue increased by 11.8% yoy, also mainly driven by the hygiene segment (+17.5% vs insulation segment’s +2.2%). We expect revenue from hygiene products to continue growing on the back of stronger demand from Malaysia and Japan, the group’s two largest markets.

Net Profit on the Mend

While 3Q17’s net profit fell by -2.7% yoy, the group’s bottom-line has continued to improve. On a sequential basis, 3Q17 net income rose by a strong 22% qoq (2Q17: +22.6% qoq). YTD, 9M17 net profit is up 8.4% yoy, as operating costs dropped 10.8% alongside revenue growth of 11.8%. Improved margins from both the hygiene (efficiency gains from the utilization of a spooling machine) and insulation segments, alongside reduced financing costs contributed to the 20.9% yoy growth in 9M17 PBT.

Maintain BUY With An Unchanged TP of RM0.88

Earnings were broadly in line with our expectations thus far, and we expect higher contribution from the new customer in 4Q17. We maintain our BUY rating on Oceancash with a TP of RM0.88 based on an unchanged 2018E PER of 15.5x. We believe the company’s near-term earnings growth potential will continue to be buoyed by increasing demand for its premium-quality hygiene products.

Source: Affin Hwang Research - 24 Nov 2017