• Firing up insulation production to meet pent-up demand from a rebound in car sales.
• Robust orders from hygiene key customer and received fresh orders from abroad, benefiting from the rerouting of supply chain caused by the Covid- 19 pandemic.
• At 23x 2021E PER, we believe valuations have priced in the positives. Reaffirm HOLD rating with unchanged TP of RM0.61.

2Q20 Likely to be Weaker on MCO, But 2H20 Prospects Look Better

We believe the 2Q20 results will be sequentially weaker, considering the insulation segment had halted productions and the hygiene segment was operating at minimal capacity between April to Early-May 2020 to adhere with the Movement Control Order protocols. Moving past 1H20, OCP’s 2H20 prospects will likely improve, in our view, considering the reasons discussed below.

Insulation Segment to Benefit From the Rebound in Car Sales

OCP is currently firing up insulation production to meet pent-up demand from a rebound in car sales, after the lockdown eased and announcement on sales tax exemption on cars by the government. In addition, we believe potential new car launches, such as the 2020 facelifted Perodua Myvi as well as the much-anticipated

launch of the Proton X50 in 2H20 will be a boon to felt manufacturers like OCP. Meanwhile, construction of the Thailand factory has been completed, but we learnt that commercialisation will be delayed to 1Q21 due to the Covid-19 travel restriction.

Hygiene segment receives a blessing in disguise from Covid-19 pandemic

We also anticipate earnings recovery for OCP’s hygiene segment from the gradual ramp-up production of non-woven products. Management guided that the orders from the key customer that was secured in late-2019 remain robust and OCP had also received additional orders from abroad due to disruption faced by its former supply chain, caused by the Covid-19 pandemic.

Reiterate HOLD With Unchanged TP of RM0.61

We make no major changes to our earnings forecasts at this juncture, and maintain our TP at RM0.61 based on unchanged target 2021E PER of 22x. Given the solid recovery prospects in 2H20 and subsequently better earnings expansion heading into 2021, we believe valuation is fair - the stock is currently trading at +1SD 5-year historical mean forward PER of 22x. Reaffirm HOLD.

Source: Affin Hwang Research - 20 Jul 2020