Oceancash reported a net profit of RM9.8m (-3.2% yoy) for 2017 which came in below our and consensus forecasts. This was due primarily to a significantly higher effective tax rate yoy. Excluding the higher tax rate, pretax profit (+4.2% yoy) came in within our expectations. Topline continued to show steady growth (+7.2%) yoy underpinned by strong sales growth in its hygiene division despite flat revenue in the insulation division. We maintain our BUY rating with a lower 12-month TP of RM0.78.

Hygiene Division Driving Topline Growth

Oceancash reported a FY17 revenue of RM89.7m (+7.2% yoy), mainly driven by stronger revenue growth from the hygiene division (+11.6% yoy), which accounted for 66.1% of total revenue. Meanwhile, revenue at the insulation division remained flat (-0.5% yoy), in line with a decline in revenue from Indonesia (-5.6 yoy). On a quarterly basis, revenue declined unexpectedly (-3.9% qoq) with lower sales in both the hygiene and insulation divisions.

2017 Earnings Lowered by Higher Effective Tax Rate, Depreciation

Oceancash saw a decline in its 2017 net profit (-3.2% yoy), which was below both our and consensus estimates, mainly due to a higher-thanexpected effective tax rate and slightly higher depreciation costs. However, pretax profit saw commendable growth of 4.2% yoy, driven by profit growth in both the hygiene and insulation divisions. We are positive on Oceancash’s 2018 growth prospects, underpinned by likely continued strong demand for its premium-quality hygiene products as well as a potential pick-up in the insulation division on a ramp-up in local car production.

Maintain BUY With a Lower TP of RM0.78

We are lowering our 2018-19E EPS by 11% as we factor in a higher effective tax rate and slightly higher depreciation costs. Nonetheless, we maintain our BUY rating on Oceancash with a lower TP of RM0.78 based on an unchanged 2018E PER of 15.5x. We view the recent announcement of a proposed transfer of listing to the Main Market as positive for Oceancash, as it should improve the liquidity of Oceancash shares. Key downside risks to our call would be fiercer competition in the hygiene segment and lacklustre insulation division sales.

Source: Affin Hwang Research - 1 Mar 2018