Oceancash (OCP) reported a decent set of results – 2019 core net profit of RM7.6m (+14% yoy) was within our expectations. The stronger performance was mainly due to higher revenue and an uptick in the EBITDA margin. While we remain optimistic on OCP’s long-term prospects, we cut 2020-21E EPS by 4-7% in view of a weaker macro outlook, exacerbated by Covid-19. In tandem, we lower our TP to RM0.56 (from RM0.61). At a 11x 2020E PER, the valuation looks attractive.

2019 Core Net Profit Rose by 14% Yoy; Within Expectations

OCP’s 2019 core net profit grew by 14% yoy to RM7.6m on higher revenue (+5% yoy) and a slight uptick in the EBITDA margin. On a segmental basis, the insulation division (+5% yoy) saw stronger sales in Malaysia and Indonesia, while the hygiene division (+5% yoy) had better times in both Malaysia and Japan. All in, the earnings were broadly within expectations, accounting for 95% of our full-year estimate. The slight variance to our forecast was mainly due to weaker-than-expected margins.

Core Earnings Weaker Sequentially

OCP’s 4Q19 core earnings was weaker by 10% qoq to RM1.9m, dragged down by weaker revenue (-3% qoq, mainly due to a 10% decrease in insulation sales) and a weaker EBITDA margin (down 4.1ppts due to higher sales from the lower-margin insulation division). Management remains positive on OCP’s 2020 prospect but we think its near-term earnings could be weighed down by the weaker macro outlook and supply disruption (some minor parts from Korea) as a result of Covid-19.

Maintain BUY With a Lower TP of RM0.56

Although results were within expectations, we revise downwards our 2020- 21E EPS by 4-7% to reflect the weaker demand and possible supply chain disruptions from Covid-19, but there could be upside risk to earnings should maiden orders from a new major customer within the hygiene segment ramp up from 2Q20. We also introduce our 2022 forecasts. We continue to favour OCP for its hygiene segment’s strong growth prospects, while expecting steady demand from the automotive industry to underpin its insulation segment’s performance. Maintain BUY, with a lower TP of RM0.56 (from RM0.61) based on an unchanged 14x 2020E PER target. Key downside risks: (i) fiercer competition in the hygiene division; (ii) unfavourable forex fluctuations; and (iii) weaker regional felt sales

Source: Affin Hwang Research - 2 Mar 2020