Investment Highlights

• We maintain our HOLD call on Pecca Group with an unchanged fair value of RM1.34/share, pegged onto a FY21F PE of 12x.
• Pecca Group announced yesterday that the group’s production floor has resumed operations on 23 Nov 2020, following a 6-day closure of its production operations since 17 Nov 2020 – after a confirmation that an employee was tested positive for Covid-19.
• It was also noted that its office employees, who are not involved in the day-to-day operational production, are working from home. After completing more than 600 tests on Pecca’s employees, a total of two (2) were tested positive, and are receiving medical care as per the Ministry of Health’s regulations. Close contacts of the said employees are still in quarantine and will be tested again on Wednesday, 25 Nov 2020.
• We would like to note two (2) key highlights:
  1. We gather that the estimated costs for conducting the swab tests and disinfection process will range between RM150K and RM200K.
  2. Based on our back-of-the-envelope estimates, the impact of the 6-day closure of the group’s production operations will be less than 2% of Pecca’s top line.
• Combining both factors, we estimate the net impact on earnings to be about RM600K, which is about 2% of Pecca’s total FY21F net earnings. We deem this to be insignificant. We make no changes to our FY21–23F earnings estimates.
• Overall, we are looking forward to seeing how the net impact of the group’s new venture into the PPE business would pan out as it will be earnings accretive. Pecca’s automotive division is expected to benefit from Proton and Perodua’s dominance in the local auto sector and the impressive sales of the two marques due to the SST exemption.
• We also take comfort in the fact that the group has confirmed its participation in supplying leather seat products to both the Proton X50 and Perodua D55L. However, further upside in share price may be capped as Pecca is already trading at a PE of 13.5x on FY21F EPS.

Source: AmInvest Research - 24 Nov 2020