Pecca reported 1HFY19 PATMI of RM8.6m (+49.1% YoY), above our expectation. The stronger earnings were mainly due higher sales volume (attributed to higher Perodua demand) and improved operational scale. Maintain BUY recommendation with unchanged TP of RM1.35 based on 13x P/E on FY20 EPS.

Above expectation. Reported a strong core PATMI of RM5.3m for 2QFY19, boosting 1HFY19 PATMI to RM8.6m achieving 57.7% of our FY19 forecast and 67.2% of consensus. We believe the strong earnings was due to the high car seats volume demanded for the resumption of Myvi production since Oct 2018 and the recent newly launch Aruz starting Dec 2018.

Dividend. None.

QoQ/YoY/YTD. Following revenue growth on higher sales volume (attributed to strong demand from Perodua on Myvi model as well as the new Aruz), core PATMI improved by 57.6% QoQ, 82.9% YoY and 49.1% YTD on higher sales volume and improved operational scale. Group EBITDA margin improved to 20.4% in 2QFY19 as compared to 18.0% in 1QFY19 and 13.8% in 2QFY18.

Outlook. Pecca is expected to continue leveraging on major client Perodua sales growth, for the continued strong demand for Myvi model and the newly launched Aruz model. Management is also strategizing to increase export sales volume, which fetch higher margin.

Forecast. Unchanged pending analyst briefing later today.

Maintain BUY, TP: RM1.35. Maintain BUY recommendation on Pecca with unchanged TP: RM1.35 based on PE 13x of FY20 profit. We remain positive on Pecca’s strong operating cash flow of RM16-24m per annum (for FY19-21) on top of its current net cash position of RM89.3m (translating into 49 sen/share).

Source: Hong Leong Investment Bank Research - 1 Mar 2019