Thursday, December 17, 2015

Ocean of Cash... part 3...

A lot of members have started to ask whether "Why do Big Canon like OCNCASH so much?

Well, we will explain to U the rational behind. However, as we writing this article past few days, the share price have had a great run today. Congratulations to our readers!

All is well with Ocean of cash.. 


Looking at the past few days, global market had tumbled as we are 1 step closer to the FED's FOMC meeting where Malaysia market are not spared too. Does this mean there is no more stock that worth to look into already?


Well.. as we mentioned before, there will be window dressing and its finally here.. 


As we look back at what happen on August, we saw that most of the stock had came down when the index took a nose-dive. However, this doesn't last long as those stocks that are benefited from the weak Ringgit and strong USD such as those furniture counters and export oriented counters had rebounded strongly and they are hitting new high recently as strong USD are pushing the profit of these companies to new high. 
Ex: Hevea, Pohuat, Homeritz, VS, LCTH.


On the other hand, we've started to see plastic counters are also hitting new high with their profit as the cost of their raw material "resin" which is derive from Petroleum had hit new low together with the Crude price. On the other hand, these companies had also export their product hence strong USD coupled with low raw material cost which had boosted their profit and share price to new high. 
Ex: Pbplastic, SCGM, SLP, Scientx


Looking at the current situation, International Crude oil price is hitting 7 years low in the past week while RM is now at 4.3+ VS USD. We are not sure whether will Crude oil hit below USD 30 per barrel but at least it is now below 40 USD per barrel which will help to lower down the raw material cost. On the other hand, the rate hike is almost certain which is will bring back the strong USD for mid term.

As a result, Strong USD and low raw material cost will continue to be the theme of the market as long as the Ringgit is still weak coupled with low crude oil price. Where lots of those gem will be discovered by the market. 


Talking back about OCNCASH, some of our members get to interview the top management from the company (prefer not to disclose). As we well aware there are 2 segment for the company.


FELT Division 

1. Oceancash have 3 lines where 2 in Malaysia and 1 in Indonesia and the new factory in Indonesia to commence operation in final quarter of 2015, where the new factory will ultimately house their production line and doubling their existing capacity from 150 to circa 300 tonnes per month. The increase in capacity will help to increase the revenue of the company too.

In Malaysia, they indirectly supplied 100% of felt in Panasonic's aircond. On the other hand, they also export to countries like Australia, Thailand, Philippines, 20% of sales are based in USD.

2    2.  The export sales to Thailand is healthy and it picked up in the second half of 2015. The decision of setting up production in Thailand will result in higher sales due to the nature of the automotive OEM business there.  
3
      3. They expect the slow car sales in Malaysia to affect their felt business in 2015, however they expect the overall business to be unaffected due to the increased sales in Aircond industry coupled with increase export sales.

      4. They have 2 kind of felt where 1 is resinated felt (use for engine cover) and non-resinated felt. The low crude price had brought down the cost of this segment, though the growth in this segment is minimal but the margin had went up due to lower cost. This will help to increase the profit from this segment.


      5. There are only 3 companies that produce felt in South East Asia where 1 is in Thailand and 1 is OCNCASH and another 1 is in Nilai.


    Non - Woven Division

    1. The nonwoven segment is also a beneficiary from the low crude price as the raw material is related to crude oil. As a result, we will see increase in profit margin that boost the profit.

    2.  2 in 1 nonwoven product is the current trend where it has several factors to fuel the growth of OCNCASH.
 
    3. The company had modified their machines to increase the capacity for nonwoven production where this had increased their air-through non woven capacity by 100 tonnes/ month.

    4. They are supplying their non-woven product to hygiene business producer such as those famous brand (can't put the name here). They are producing femine care products such as sanitary pads, party liners. breast pads as well as adult diapers. Most of the diapers are their clients except Mamipoko.

    5. The utilization rate of the production is 80% at the moment after getting more orders from customers recently.


   The management had also share there they are the beneficiary of strong USD as they are doing export as well as low crude oil price.  These are just the theme that we are looking for, on the other hand this company have also got a production line expansion story where the production line will increase by 30%.


  On the other hand, we also understand that the management is quite keen and have met a lot of fund managers. As a result, we saw that 1 of the fund had appeared in top 30 shareholder list. This can be check from the bloomberg portal which is only available to those corporate guys. 
   From the picture u can see that there are 2 funds that have invested into OCNCASH, where U can see at number 11 that AmAsia Pacific Equity Income have just invested in 31st October 2015. Looking at the date, we guess the cost of the fund is 36 cents and 37 cents.

 Looking at number 17, we saw KAF Tactical Fund have just invested in 28th February 2015. The cost is about 30 cents.

 Another thing is that the company have paid dividend recently, where this had open the road for some funds to invest in them, this is because some of the fund can only buy shares with dividend. We believe the management had open the road for fund to invest in them. As a result, we can monitor closely whether will there be any DBT or placement take place.

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    Summary

    1. OCNCASH has a theme of Lower raw material cost due to lower Crude Oil Price
    2. Beneficiary of Strong USD as they have 70% revenue is from exporting segment. 
    3. The expansion of production line which help to boost the top and bottom line. 
    4. Changing listing from Ace market to Main market. 
    5. There are fund that invested in them and we believe this is just the beginning. 
    7. The good result of NTPM had causes the share to move, which we believe this will causes OCNCASH to get re-rated as this counter is now trading at 10 times annualized PE. 

   We remain our TP of 50 cents for mid term and long term is 60 cents. 



May all the HUAT be with us!
Regards
Big Canon Finance


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