OCNCASH (0049) - OCNCASH - Upgrade TP to RM1.40, boost from cumulative Q3'17 Indonesia earnings



Highlights/Comments (Fundamental)

    We increase our target price to RM1.40, as we gather that OPB recorded increase in plant utilization to 78% arising from the newly installed spooling machine in both Malaysia and Indonesia and production ramp up in August 2017 in OPB's Cikarang, Indonesia plant, in Q3'17. We impute higher earnings for Q3'17 and Q4'17 and we believe that existing consensus estimates has yet to factor in the increase in plant utilization and production ramp up for the new customer. We gather that the new customer is a large Japanese automobile conglomerate with large presense in Indonesia.

    We increase our revenue and PATAMI forecast for Q3'17 to RM28million and RM4.1million, in line with the increase in utilization and production ramp up. We previously deemed OPB's Q2'17 financial results in line with ours (35% of our full year estimate) and consensus expectation (between 35% to 38% of full year estimate). Earnings dip in Q2'17 was due to decline in Indonesia sales as Idul Fitri holidays fell in June 2017. All other major regions recorded growth.

    We gather that the group had commenced sales to the new Indonesia customer in late June. However, due to seasonal factors (Idul-Fitri holidays in June), sales to new customer only made up an insignificant portion of June revenue. Nonetheless, the group was able to record commendable Q2'17 despite being seasonally affected by Idul-Fitri holidays in June-July period (2016 Idul-Fitri fell in July 2016).

    Based on auto sales statistics gathered from Gaikindo, cumulative automobile sales for Q3'17 (269,237 automobiles sold) exceeded cumulative automobile sales for Q2'17 (250,466 automobile sold) by 8%. We believe this should reflect positively to OPB's Q3'17 PATAMI.

Other catalyst

    Main board transfer. OPB has met all requirements for transfer to Main Board. RM6mil profit for the immediate financial year and cumulative uninterrupted earnings of RM20mil for the past 3 years. We gather that it is only a matter of time that OPB will announce this.

Risks

    Sharp decline in automotive sales in Malaysia, Indonesia, Japan and Thailand.

Forecasts

    Upgraded TP

Rating

    ADD ↑ , TP: RM1.40

Valuation

    We forecast FY18 financial earnings to record c.RM20million.

    We ascribed a target price of RM1.40/share based on 15.5 times FY18 EPS of 8.96cents/share.





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