Restrictions, expansion delays dent Oceancash’s growth

by ANIS HAZIM / pic credit:

OCEANCASH Pacific Bhd’s first half of 2021 (1H21) core net profit of RM2.6 million, up 46.3% year-on-year (YoY), was below analysts’ expectations due to weaker than expected export sales by its hygiene segment.

CGS-CIMB Securities Sdn Bhd analyst Syazwan Aiman Sobri said the result was below expectation at 38% and 39% of the brokerage and Bloomberg consensus previous financial year 2021 forecasts (FY21F).

However, he noted that Oceancash’s 1H21 revenue edged up by 0.5% YoY.

“This is mainly due to stronger sales from its insulation segment (+40% YoY) in the second quarter of 2021 (2Q21) as its automotive customers ramped up production to meet demand backlogs,” Syazwan Aiman wrote in a research report on Saturday.

CGS-CIMB expects the sales recovery for its insulation segment to be disrupted in 3Q21F, although its 2Q21 saw a quarter-on-quarter recovery in sales from automotive customers due to pent-up end demand.

The analyst said this is due to some of its large automotive customers being forced to stop production during the Full Movement Control Order period.

“We gather that Oceancash only managed to resume operating at full capacity in mid-August 2021, while automotive production remained affected by supply chain disruptions,” Syazwan Aiman said.

He projected a full recovery for Oceancash’s production from September 2021 onwards.

CGS-CIMB also gathered that the relocation of one of the group’s insulation felt lines in Indonesia to Thailand is still indefinite and will likely only materialise in FY22F due to ongoing travel restrictions.

Syazwan Aiman said, in the near term, orders from Thailand were fulfilled via its Malaysian facilities, which could lead to lower margins due to higher transportation costs.

“For its hygiene segment, the planned capacity expansion via the purchase of new spun-melt non-woven machinery to potentially double its non-woven production capacity to 16,000 tonnes per annum is also delayed due to travel restrictions,” he added.

CGS-CIMB cut its FY21-FY22F earnings per share forecasts by 2.1% to 12.3% to reflect disruptions in demand due to movement restrictions and further capacity expansion delays.

The brokerage retained its ‘Add’ call with a lower sum-of-the-parts-based target price of 59 sen, in line with the earnings cut.

“We still like the stock for its long-term growth prospects as we expect end-demand for both its insulation and hygiene segments to recover after the economy reopens,” Syazwan Aiman said.

He said the key downside risks are a sharp drop in orders for the group’s hygiene segment and a further delay in its capacity expansion plan.

Oceancash shares ended 2.2% higher to 46 sen last Friday, valuing the company RM121.27 million.