Investment Highlights

• We maintain our HOLD call on Pecca Group with a higher fair value of RM1.77/share after rolling over our base year to FY22F, pegged onto an unchanged PE of 13x.

• Pecca’s 1HFY21 core net profit of RM11.8mil (adjusted predominantly for one-off Covid-19-related expenses) came in within our expectations but above consensus at 52% and 58% of our full-year forecast and full-year consensus estimates respectively. Core net profit was up 40% from RM8.4mil a year ago.

• Pecca’s automotive (car seat cover division) top line was up 7% YoY in 1HFY21 to RM60.0mil. The OEM segment registered a 1HFY21 revenue of RM49.7mil (+14 YoY), thanks to higher production volumes for the auto sector – mainly brought about by the encouraging demand due to the SST exemption in the domestic market. Meanwhile, the REM segment recorded a lower 1HFY21 revenue of RM4.7mil (-30% YoY). We believe this was attributed to lower orders from Singapore and Oceania as a result of the dampened consumer spending on vehicles in the country due to the Covid-19 pandemic.

• Pecca’s export business plummeted to RM5.2mil (-57% YoY) in 1HFY21 from RM12.2mil 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 7.1% of its total top line in 1HFY21.

• Pecca’s PPE segment recorded a 1HFY21 revenue of RM5.4mil, contributing to about 7% 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 in August 2020. Pecca has already secured the certifications from the US FDA and the CE marking from the European Union, which we believe will help in the group’s efforts to export its PPE products to the overseas market.

• We also take comfort on the fact that the group has confirmed its participation in supplying leather-seat products to both the Proton X50 (B-segment SUV) and Perodua Ativa (A-segment SUV). We believe that Pecca’s performance in 2HFY21 will still be supported by the extension of the SST exemption and Perodua’s sustained dominance in the local auto sector. However, further upside in share price may be capped as Pecca is already trading at a PE of 16x on FY21F EPS.

Source: AmInvest Research - 1 Mar 2021