HLIB maintains a BUY rating with a RM1.40 TP (+21.7% upside) based on 13.3x P/E on FY20 EPS, given its strong operational cash flow of RM17-25m per annum (FY19-21) and net cash position of RM94.0m (51sen/share or 45% to share price). Valuation is undemanding at 10.9x FY20E, 27% lower than average 15x P/E since listed, while ex-cash PECCA’s PE is more compelling at 6x, supported attractive DY of 5.2-7.0% for FY19-21. Overall, PECCA is expected to continue leveraging on major client Perodua sales growth (strong demand for Myvi and newly launched Aruz models). Management is also strategizing to increase export sales (revenue grew 11% in 9MFY19), which fetches higher margin. Technically, the positive Cup & Handle formation may signals a potential upside targets around RM1.24-1.42 zones.

Bullish continuation pattern after the Cup & handle formation. The cup and handle formation recently suggested that the next leg up is likely taking place now. The Dragonfly Doji pattern yesterday, supported by higher volume of 1.29m (2.6x higher than 20d average) and bottoming up stochastic indicator could signal further upside ahead. A push above RM1.24 (8 July high) would put prices on course for a move to test RM1.28 (61.8% FR) before heading towards our LT objective at RM1.42 (61.8% FR). Key supports are situated at RM1.05-1.10. Cut loss at RM1.04.

Source: Hong Leong Investment Bank Research - 2 Aug 2019