Pecca Group - A Quarter for Celebration

Date: 03/06/2019

Source  :  HLG
Stock  :  PECCA       Price Target  :  1.40      |      Price Call  :  BUY
        Last Price  :  1.25      |      Upside/Downside  :  +0.15 (12.00%)

Pecca reported 9MFY19 PATMI of RM13.8m (+65.4% YoY), above our expectation. The stronger earnings were mainly attributed to higher sales volume (driven by higher Perodua demand) and improved operational scale. Maintain BUY recommendation with higher TP of RM1.40 (from RM1.35) based on unchanged 13x P/E on FY20 EPS, given its strong operational cash flow of RM17-25m per annum (FY19-21) with current net cash position of RM94.0m (51sen/share).

Above expectation. Reported a strong core PATMI of RM5.2m for 3QFY19, boosting 9MFY19 PATMI to RM13.8m achieving 89.4% of our FY19 forecast and 86.8% of consensus. The strong earnings was due to the high car seats volume demanded for the resumption of Myvi production since Oct 2018 and the recent newly launch Aruz starting Dec 2018.

Dividend. None.

QoQ. Core earnings was relatively flat at -0.4% QoQ, with the higher sales of REM market (mainly export) offsetting the lower contribution from Aviation segment (as witnessed by the loss attributed to MI of RM70k in 3QFY19 vs profit attributed to MI of RM125k in 2QFY19).

YoY/YTD. Following revenue growth on higher sales volume (attributed to strong demand from Perodua on Myvi model as well as the new Aruz), core PATMI improved by 101.7% YoY and 65.4% YTD on higher sales volume and improved operational scale. Group EBITDA margin improved to 20.9% in 3QFY19 as compared to 12.1% in 3QFY18.

Outlook. Pecca is expected to continue leveraging on major client Perodua sales growth, for the continued strong demand for Myvi model and the newly launched Aruz model. Management is also strategizing to increase export sales volume, which fetches higher margin.

Forecast. We raised our earnings forecasts for FY19-21 by 11.2%, 1.9% and 0.2% respectively, due to higher than expected sales volume and margins.

Maintain BUY, TP: RM1.40. Maintain BUY recommendation on Pecca with higher TP: RM1.40 (from RM1.35) based on unchanged PE 13x of FY20 profit, following our earnings adjustments. We remain positive on Pecca’s strong operating cash flow of RM17-25m per annum (for FY19-21) on top of its current net cash position of RM94.0m (translating into 51 sen/share).

Source: Hong Leong Investment Bank Research - 3 Jun 2019

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