Oceancash’s price surge overdone, take profit

KUALA LUMPUR: Oceancash Pacific Bhd’s (OCP) share price surged to an intraday high of 82 sen (up 57.7%) on Tuesday, was likely due to expectations of a surge in demand for non-woven products for hygiene applications (such as surgical face masks) amid worsening coronavirus outbreak.

CGS-CIMB Equities Research said on Wednesday the 82 sen exceeded the previous all-time intraday high of 74 sen in mid-2017.

Various media reports also claim that there is a shortage of surgical face masks, which contain non-woven materials, especially in East Asia.

OCP’s share price surge was in tandem with a jump in the share prices of other hygiene/healthcare related sectors such as rubber gloves, pharmaceuticals and healthcare, among others.

“While OCP’s non-woven products are used in the production of surgical face masks, we gather the contribution to be insignificant (less than 1% of total revenue).

“As OCP produces higher quality air-through bonded non-woven products, the bulk of its products are used as absorbent layers in diapers and sanitary napkins which typically require materials which are finer and gentler to the skin.

“We understand that the non-woven layers in surgical face masks are typically made of cheaper-priced spun-bonded nonwoven products, which we believe is not a focus for OCP in view of the thinner margins, ” it said.

Nonetheless, CGS-CIMB Research still sees an earnings recovery in FY20F mainly due to better sales volumes for its non-woven segment.

This is premised on the gradual ramp-up of production of non-woven products for a new large customer that it secured in FY19, which is to replace loss of orders from a key Thai customer which it lost in FY18.

This will be partially offset by higher operational costs for the relocation of one of its felt lines to Thailand (likely to be completed in 2HFY20F), leading to lower margins at its felt segment, in its view.

“We retain our FY19-21F earnings forecasts. As we think the sharp surge in its share price is ahead of its fundamentals, we downgrade our call to a Reduce (from Hold) with an unchanged SOP TP of 53 sen.

“De-rating catalysts include better-than-expected containment of the coronavirus outbreak. We would turn positive on the stock if it i) sees better-than-expected traction from its new hygiene segment customers and/or ii) incurs lower-than-expected operational costs for its Thailand relocation for its felt segment, ” the research house said.