Highlights

Pecca Group - Sustainable Outlook in FY19

Date: 04/03/2019

Source  :  HLG
Stock  :  PECCA       Price Target  :  1.35      |      Price Call  :  BUY
        Last Price  :  1.14      |      Upside/Downside  :  +0.21 (18.42%)
 


Post 2QFY19 briefing, we remain positive on the group’s outlook from improving sales for both domestic (driven by Perodua) and export markets. We expect higher dividend payout in FY19 following higher earnings expectation. Maintain BUY recommendation with unchanged TP of RM1.35.

2QFY19 earnings. The strong 2QFY19 earnings were due to higher seat volume demand from Perodua (stepped up production of Myvi model to fulfil the high order backlog) and higher average pricing following Pecca’s successful negotiation for higher prices with some of its customers due to increasing cost structure.

Domestic volume to sustain. Management guided volume to sustain for FY19, mainly driven by the demand from Perodua. It was mentioned in its previous briefing that the scheduled high volume for Perodua Myvi will last until Apr 2019. Production for the new Perodua Aruz model has commenced in Dec 2018 and will gain momentum in 2019. Launched in mid Jan 2019, Aruz has received a strong 8,000 units by end Jan.

Exploring export market. Export volume remained stable in the quarter. Management continues to explore for more export opportunity as talks with existing and new dealers are ongoing. Export prices are c.30% higher than local prices.

M&A plan still on. M&A proposals are being scrutinized, pending further review. Management is hopeful to conclude the M&A exercise by year end. To recap, the targeted M&A is related to automotive sector. Its cash coffers of RM89.4m would be sufficient to finance the M&A exercise.

Aviation. Pecca’s PAviation is still unable to provide leather refurbishment services to the aviation sector pending the required licensing. Management is currently applying for EASA (European Aviation Safety Agency) license, which will eventually allow Pecca to penetrate into the lucrative market of aviation leather seats. In the meantime, PAviation is providing minor aircraft maintenance work to the sector.

Dividend. Management assured that the company’s dividend payout policy is still intact. Pending approval, Pecca will announce a first interim dividend in coming weeks.

Forecast. Unchanged.

Maintain BUY, TP: RM1.35. Maintain BUY recommendation on Pecca with unchanged TP of RM1.35 based on PE 13x of FY20 profit. We remain positive on Pecca’s strong operating cash flow of RM16-24m per annum (for FY19-21) on top of its current net cash position of RM89.3m (translating into 49 sen/share).
 

Source: Hong Leong Investment Bank Research - 4 Mar 2019

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