• Oceancash’s 2020 core net profit came in at RM4.3m (-38.6% yoy) – within our expectations
• Sequentially, revenue was marginally higher at RM21.3m (+0.6%), whereas core net profit rose 64.5% to RM1.5m, aided by better cost containment
• No changes to our earnings forecasts. We lower our valuation multiple to 21x 2021 PER to reflect the prolonged pandemic impact on sales and operations. Maintain HOLD with a lower TP of RM0.55

2020 Core Net Profit Contracted -38% Yoy to RM4.3m

Oceancash posted a 2020 revenue of RM80.2m (-10.3% yoy), largely attributable to the impact of a temporary production halt for 2 months for the insulation division during MCO before gradually resumed operations in June 2020. Meanwhile, the hygiene division recorded a slight improvement in sales to its export markets such as Thailand, China, Bangladesh and Australia. Geographically, 2020 saw declines across the board, with the exception of Thailand. Meanwhile, EBITDA margin was lower at 13% (-2.3ppt) likely on lower mix of the higher margin insulation segment and lower efficiency due to the pandemic. All in, core net profit of RM4.3m (-38.6% yoy) was within our expectations.

Stronger Sequentially on Better Cost Control

Sequentially, 4Q20 revenue was marginally higher at RM21.3m (+0.9%), coming on the back of stronger sequential sales for the insulation segment which swung back to full operations in 4Q20. Owing to better cost controls, EBITDA margins expanded +3.7ppt qoq, resulting in a higher core net profit of RM1.5m (+64.5%). Looking ahead, we envisage the insulation division’s prospects to remain supported by the local sales tax exemption period, although we note that prolonged pandemic is still affecting car sales in Indonesia. Likewise, pandemic disruption could still delay the relocation of the insulation machines to Thailand from Indonesia.

Maintain HOLD

No changes to our earnings estimates for 2021-22E, while we introduce 2023E forecasts. We now lower our valuation multiple to 21x 2021E PER (from 26x), reflecting its 5-year mean in view of the prolonged impact of the pandemic, which is delaying the commissioning of its production line in Thailand for the insulation segment. Valuation looks fair at this juncture, hence we maintain our HOLD rating with a lower TP of RM0.55. Key risks include: i) higher-/lower-thanexpected growth in the automotive markets in Malaysia, Indonesia and Thailand, ii) competition in the non-woven segment, especially from Chinese non-woven manufacturers and iii) forex fluctuations.

Source: Affin Hwang Research - 26 Feb 2021