We came back from our meeting with Oceancash’s management feeling positive about the prospects of both their insulation and hygiene segments, particularly on their expansion plans abroad. Higher contributions from Indonesia and Thailand should be the main drivers for growth moving forward. As OCP’s valuation is looking attractive currently, trading slightly below its 5-year PER average, we reiterate our BUY rating with a 12-month TP of RM0.78.

One-off costs, stronger RM cause lower-than-expected FY17 net profit

Oceancash saw a -2.6% yoy decline in net profit in FY17, due to lower gains from foreign exchange as a result of a stronger ringgit, one-off listing expenses, and non-recurring maintenance costs. This was despite a decent revenue growth of 7.2% yoy in 2017, primarily driven by strong topline growth in the hygiene segment.

Looking to Indonesia and Thailand to Drive Felt Sales Growth

While local felt sales may not excite due to tempered growth in automotive sales, we see that growth in the insulation segment will be driven by increasing contributions from Thailand and Indonesia. Oceancash is looking to reallocate one of its Malaysian production lines to Thailand to tap into the strong demand for resinated felts. For Indonesia, increasing utilisation of excess capacity is expected as the company is pricing competitively to grow within Indonesia’s growing automotive sector.

Leveraging on Strong Capabilities in the Hygiene Business

We continue to be upbeat on the prospects of the hygiene segment, which benefits from the premium capabilities of Oceancash’s non-woven products. We understand that Oceancash is setting up a trading warehouse facility in Thailand to cater to the shorter delivery times required by Thai customers. A new factory might be on the books in the future if Thai felt sales gain enough traction.

Reiterate BUY Rating, Price Target Unchanged at RM0.78

We reiterate our BUY rating on Oceancash with an unchanged TP of RM0.78 based on a 2018E PER of 15.5x. We believe that the decline in the share price since mid-2017 provides investors with a good buying opportunity in view of Oceancash’s positive growth prospects in both the insulation and hygiene segments. Key downside risks: 1) lacklustre felt sales due to weaker automotive sales and 2) fiercer competition in the hygiene segment.

Source: Affin Hwang Research - 6 Apr 2018