Pecca Group Bhd

Improving prospects & joining the healthcare fray

• Vehicle sales will see gradual improvement backed by the Economic Recovery Plan (PENJANA) that implemented 100.0% sales tax exemption on CKD passenger vehicles and 50.0% on CBU from 15th June 2020 to 31st December 2020.

• PECCA is diversifying into the production of PPE products via CAPEX allocation of RM2.2m, funded through internally generated funds.

• Solid net cash position of RM91.0m, translating to net cash per share of RM0.48. Technically, has snapped a six-day selling streak and recovery above RM0.885 may propel share price higher to re-test RM0.96-RM1.05 with long term target at RM1.12.

Trading Catalyst

• Pecca Group Bhd (PECCA) principally involved in the styling, manufacturing and distribution of leather car seat covers for Original Equipment Manufacturer (OEM) and Pre-Delivery, Inspection (PDI) and Replacement Equipment Manufacturer (REM) market segments with bulk of its sales to Toyota Boshoku UMW Sdn Bhd (Toyota) and Fuji Seats (Malaysia) Sdn Bhd (Perodua). We reckon that vehicle sales will see gradual improvement after vehicle sales rose to 22,960 units in May 2020 vs. only 141 units sold in April 2020.

• The improvement will backed by the government’s initiative under the Economic Recovery Plan (PENJANA) that implemented 100.0% sales tax exemption on completely-knocked down (CKD) passenger vehicles and 50.0% on completely built up cars (CBU) from 15th June 2020 to 31st December 2020. Recall during the tax holiday period in 2018 when GST was zero-rated from 1st June 2018 till 31st August 2018, total vehicle sales rose 30.1% YoY to 198,518 units. Hence, we expect sales to pick up till end-2020.

• Meanwhile, PECCA will be diversifying into the production of face shields, face masks and Personal Protective Equipment (“PPE”) garments via CAPEX allocation of RM2.2m (funded through internally generated funds) by retrofitting the existing production lines and leverage its in-house talent of craftsmen and facilities within 3Q2020, subject to authorities approvals. We also note that PECCA is standing in a net cash position with cash and bank balances of RM91.0m against zero borrowings, translating to net cash per share of RM0.48 in 3QFY20. Consequently, prospective dividend yields are attractive at 5.2-6.0% for FY20f and FY21f respectively.

Technical Outlook

• Technically, share price is still on a pullback phase after forming a double top formation along RM0.96. We think that the pullback is due as price snapped a six day selling streak. A recovery from the recent selling streak above RM0.885 may propel share price higher to re-test RM0.96-RM1.05 with long term target at RM1.12. Support is pegged at RM0.80 and cut loss is located at RM0.795.

Source: Mplus Research - 15 Jul 2020