• We maintain UNDERWEIGHT on Pecca Group with an unchanged fair value (FV) of RM1.99/share based on sum-of parts (SOP) valuation. There is no ESG-related adjustment to our FV.

• Pecca has proposed to undertake a bonus issue of 564,000,000 new ordinary share on the basis of 3 bonus shares for every 1 existing share. The entitlement date will be announced later by the company’s board of director.

• Post-bonus issue, the indicative share price (5-day volume weighted average price up to 6 Jan 2022) of RM3.415 will be adjusted to RM0.853.

• We are neutral on the announcement. The bonus issue may help to improve the stock’s liquidity but there will no change in the company’s fundamentals.

• At 25–23x PE of FY22F–23F EPS, Pecca’s share price is trading at an unjustifiable premium compared to its peers. The company’s earnings prospect remains unexciting and limited by the saturated domestic automotive market.

Source: AmInvest Research - 7 Jan 2022