• Oceancash (OCP) reported a weak set of results – 6M20 core net profit fell by 46% yoy to RM2m, largely due to the negative impact of the MCO
• Nonetheless, we deem the results as within our expectation as we expect a stronger showing in 2H20
• However, given the 23% downside potential to our TP, we downgrade our rating to SELL (from Hold) with an unchanged 12-month TP of RM0.61.

Sequentially Weaker Due to MCO

Sequentially, OCP’s 2Q20 results fell by 84% qoq to RM0.3m. The weaker performance was largely due to the weaker contribution from the insulation segment: 2Q20 LBT amounted to RM0.8m (vs 1Q20 PBT of RM1.8m) as operations were halted during the Movement Control Order (MCO) period. Fortunately, the hygiene segment was allowed to operate with minimal capacity, which had contributed to PBT of RM1.1m during 2Q20.

6M20 Results Declined by 46% Yoy

On a cumulative basis, OCP’s 6M20 core net profit fell by 46% yoy to RM1.9m. Although the 6M20 results accounted for 33% of our full-year estimates, we deem the results to be inline with expectations, as we foresee more upbeat results in 2H20. We learnt that OCP is currently ramping up its insulation production to meet the higher demand from a rebound in car sales, following the announcement of the sales tax exemption on cars. As for the hygiene segment, management guided that the orders from the key customer that was secured in late-2019 remain robust and OCP has also received additional orders from new and returning customers from abroad due to the disruption faced by their former supply chain, caused by the Covid-19 pandemic.

Downgrade to SELL With An Unchanged TP of RM0.61

We make no major changes to our earnings forecasts. Following the 89% run-up in the ytd share price, we believe the stock has priced in the above-mentioned positives. At 28x 2021E PER, valuation looks rich (trading >+2SD its 5-year historical mean PE of 27x), hence we downgrade our call to Sell (from Hold) with an unchanged TP of RM0.61. Key upside risks to our call on OCP are: i) better-than-expected traction for its new hygiene segment, and ii) better-than-expected contribution from its felt segment.

Source: Affin Hwang Research - 28 Aug 2020