Oceancash plans new line in Thailand

The country’s biggest feltmaker, Oceancash Pacific Bhd, is said to be considering a plan to relocate part of its production capacity to Thailand, the group’s fastest-growing market.

As it is, exports make up 60% of the company’s felt sales, with Thailand contributing a third of this amount.

“Oceancash is looking to reallocate one of its Malaysian production lines to Thailand to tap into the strong demand for resinated felts,” Affin Hwang Investment Bank told its clients last Friday.

“The new production line in Thailand is to be up and running by end-2018, and margin improvements are to only be felt in financial year 2019 (FY19),” it said in a report following a meeting with the management of Oceancash.

Analysts, including those at CIMB Research, have made a beeline for Oceancash ahead of the company’s proposed transfer of listing from the Ace Market on Bursa Malaysia to the Main Market by end-June.

In a recent report, CIMB projected that earnings at Oceancash would grow by 17% this year, boosted by its overseas operations.

Net profit at Oceancash had dipped slightly to RM9.8mil, or 4.4 sen a share, in FY17 ended Dec 31 from RM10.1mil, or 4.57 sen a share, a year earlier.

The lower profit was attributed to a non-recurring repair work at its production facility, as well as a RM200,000 expense to graduate to the Main Market.

At its closing price of 44.5 sen last Friday, shares in Oceancash had halved in value from where they were a year ago.

CIMB Research has a target price of 76 sen for the stock, while Affin Hwang has valued the company at 78 sen a share.

“We believe that the decline in the share price since mid-2017 provides investors with a good buying opportunity in view of Oceancash’s positive growth prospects in both the insulation and hygiene segments,” Affin Hwang said.

Both firms expect growth in FY18 to be driven by higher sales overseas.

“We understand that Oceancash is one of the few players around to have production lines that can cater to both resinated and non-resinated felt,” it said.

Felt products produced by Oceancash are mainly used as insulation in cars and various hygiene applications such as baby diapers and sanitary pads.

In Thailand, the group is said to be targeting to boost sales to both car manufacturers, as well as the hygiene applications sector.

“While local felt sales may not excite due to tempered growth in automotive sales, we see that growth in the insulation segment will be driven by increasing contributions from Thailand and Indonesia,” Affin Hwang said.

The firm has a “buy” call on Oceancash, with a target price of 78 sen. This values the stock at about 15 times its projected earnings for its FY18.

Affin Hwang said it has assumed higher sales but lower margins for the felt business in Indonesia. “We understand that Oceancash will be more aggressive in competing for felt sales in Indonesia by shifting focus to the cheaper non-resinated felt, which has lower margins compared to resinated felt,” it said.

The move, it said, would help the company achieve higher sales for its unit in Indonesia.

“We forecast stronger growth due to higher utilisation rates expected, moving forward, in tandem with higher contributions from the Thailand and Indonesian segment,” it said.

Source: The Star