Oceancash delivered a net profit of RM2.5m (+3.2% yoy, +7.7% qoq) in 1QFY18 which came in marginally below our forecasts. Topline was relatively weak (+1.5% yoy, -0.6% qoq), as a decline in Japan nonwoven sales offset insulation felt sales improving on a sequential basis. Nonetheless, we maintain our forecasts and foresee improvements in both the hygiene and insulation divisions for the rest of 2018. Maintain BUY with a higher TP of RM0.82.

1QFY18 Earnings Marginally Below Expectations

Oceancash recorded a net profit of RM2.5m in 1QFY18 (+23.5% yoy) which came in marginally below estimates (22% of full year estimates). The increase in net profit mainly came from lower finance costs and a lower tax rate on a yoy basis. Topline however was less exciting, growing by 1.5% yoy underpinned by higher sales in the hygiene segment (+5% yoy) due to increase in hygiene sales to the Thailand and Malaysian market. However, it was tempered by a decline in felt sales (-5% yoy) to the automotive sector in Malaysia and Indonesia.

Flat on a Qoq Basis

While, earnings growth was at +7.7% qoq, revenue growth on a qoq basis was relatively flat/soft due to slowdown in hygiene revenue, caused by a decline in sales to the Japanese market which saw sales declining by 15% qoq. This could be partly due to stronger RM/US$ in 1QFY18 (Avg: 3.92) compared to 4QFY17 (Avg: 4.16) as Japanese sales are denominated in US$. However, this was offset by stronger felt sales on a qoq basis due to higher contribution from the Thailand and Malaysia market. 1QFY18 saw revenue contribution from Thailand increasing by 45% qoq, which was in line with our expectations as Oceancash is ramping up both felt and hygiene sales to the Thai market. We also saw sequential improvement in Indonesian sales (+1% qoq) as they are aiming to increase the utilisation of their Indonesian felt plants which was operating at less than 40% utilisation rates in 2017.

Maintain BUY With An Revised TP of RM0.82

We are making no changes to our forecasts as we foresee a pickup in hygiene sales in the Japanese market and steady felt sales in the Thailand and Indonesian segment. We maintain our BUY rating on Oceancash with a revised TP of RM0.82 as we roll forward our valuation based on an unchanged 15x 2019E EPS. Key downside risks include fiercer competition in the hygiene segment and weak insulation division sales.

Source: Affin Hwang Research - 31 May 2018