OCP has proposed to undertake placement of up to 24,500 new shares, representing up to 10 per cent of its issued shares. It said, OCP might raise gross proceeds of RM21 million, to be partially used to finance its expansion.
KUCHING: Oceancash Pacific Bhd’s (OCP) fund expansion which has been earmarked for the expansion of its hygiene nonwoven products to likely broaden its existing hygiene offerings and venture into personal protective equipment (PPE).
In a report, the research team at Affin Hwang Investment Bank Bhd (AffinHwang Capital) said OCP has proposed to undertake placement of up to 24,500 new shares, representing up to 10 per cent of its issued shares. It said, OCP might raise gross proceeds of RM21 million, to be partially used to finance its expansion.
“OCP has earmarked capital expenditure (capex) of RM40 million for the expansion of its hygiene nonwoven products, where circa RM18 million is meant for the purchase of one spunmelt non-woven machine, and the balance will be used for the acquisition of land and working capital purposes; the shortfall is expected to be funded through internal funds and bank borrowings,” it said.
“We learnt during the analyst briefing that the new machine is much larger, more efficient and versatile compared to its existing machines, with the capability to produce finer nonwoven materials, which are largely used in the production of premium-range hygiene products (diapers, sanitary napkins, wet wipes) and PPE.
“Although OCP has received numerous inquiries for the PPE segment, we sensed that OCP’s focus is more inclined towardsthe hygiene segment, which is more lucrative in terms of margins and where demand is more sustainable in the long run,” it highlighted.
Notably, it said, this new machine would also double its hygiene nonwoven capacity to 16,000 tonnes per annum.
“We expect the new nonwoven capacity to be commissioned by 1H22. Recall, the hygiene 2Q20 PBT had increased more than threefold qoq to RM0.9 million on higher sales of RM15 million (up 11 per cent q-o-q),” the research team added.
Aside from that, it noted that OCP is currently ramping up its insulation production to cater for a rebound in car sales.
“Elsewhere, management guided that the relocation of the insulation machine to Thailand from Indonesia is still delayed due to the travel restrictions. The group has successfully secured a key pickup customer in Thailand, and should be able to ramp up quickly when the machine is commissioned in 1Q21, we believe,” it said.
All in, AffinHwang Capital upgraded its call on the stock to ‘hold’ and raised its 2021 to 2022 earnings forecasts by 16 to 21 per cent to incorporate the higher contribution from the hygiene segment.