Investment Highlights

• We maintain our HOLD call on Pecca Group with an unchanged fair value of RM1.34/share, pegging the stock to a FY21F PE of 12x.

• Pecca’s 1QFY21 core net profit of RM5.1mil came in within expectations, accounting for 25% of ours and 28% of consensus full-year forecasts respectively. Core net profit was up 18% YoY from RM4.3mil in 1QFY20.

• Pecca’s automotive (car seat cover division) top line dropped 7% YoY in 1QFY21 to RM32.1mil. The OEM segment registered a 1QFY21 revenue of RM24.2mil (+3% YoY), a marginal increase thanks to higher production volume brought about by the SST exemption in the domestic market. The REM segment recorded a lower 1QFY21 revenue of RM2.7mil (-25% YoY) and we believe that this was attributed to lower orders from Singapore as a result of the dampened consumer spending on vehicles in the country due to the Covid-19 pandemic. Meanwhile, PDI posted a higher sales revenue of RM2.9mil (+8% YoY).

• Pecca’s export business plummeted to RM2.8mil in 1QFY21 from RM6.2mil a year ago – due to weaker contributions across Singapore and Oceania. We strongly believe that this was due to the Covid-19 pandemic, which has dampened consumer spending on cars globally. Based on our estimates, Pecca’s export operations contributed to about 8% of its total topline in 1QFY21.  Pecca’s PPE segment recorded a 1QFY21 revenue of RM0.5mil, contributing to about 16% of total top line. We believe that the division’s performance will improve in upcoming quarters as the group only commenced the manufacturing and distribution of medical face masks since August 2020. We gather that Pecca has already secured the certifications from the US FDA, CE Marking from the European Union – which we believe will help in the group’s efforts in trying to export its PPE products to the overseas market.

• We think that Pecca’s automotive division will continue to benefit from Perodua’s sustained dominance in the local auto sector and also take comfort on 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 - 30 Nov 2020