Pecca reported 2QFY20 PATMI at RM4.2m (-11.6% QoQ; -17.5% YoY) and 1HFY20 at RM9.0m (+8.2% YoY), within HLIB expectation (46.7%) and consensus (49.5%). We expect Pecca to continue leverage on sustaining Perodua sales, given recent launch of Bezza facelift and upcoming new D55L (Toyota Raize/Daihatsu Rocky). Maintain BUY recommendation with unchanged TP of RM1.45 based on unchanged 13x P/E on FY21 earnings, given its strong operational cash flow of RM23-24m per annum (FY20-22) with current net cash position of RM99.9m (54.4sen/share).

Within expectations. Reported a core PATMI of RM4.2m for 2QFY20 (-11.6% QoQ, -17.5% YoY) and RM9.0m for 1HFY20 (+8.2% YoY), in line with HLIB expectation for FY20 (46.7%) and consensus (49.5%).

Dividend. None. We expect a follow up dividend announcement for 1H20.

QoQ. Adjusted core earnings dropped by 11.6%, due to slower sales volume for main client Perodua during the quarter, as Perodua slowed down production during year end (clear inventory) and timed for new launch of Bezza facelift in Jan 2020.

YoY. Similarly, core PATMI dropped by 17.5% (adjusted for additional RM625k costs for newly established staff incentive program in 1QFY19) on lower sales volume in the quarter and coupled with high base effect in 2QFY19 when Perodua resumed production for Myvi and new Aruz launch.

YTD. Core PATMI improved by 8.2%, attributed to normalised sales volume to Perodua in 1HFY20 as compared to production disruption of Myvi during early of 1HFY19.

Outlook. Pecca is expected to continue to leverage on major client Perodua sales growth, from the continued strong demand for Myvi model and Aruz model. The recent new launch of Bezza facelift model and upcoming D55L model (Toyota Raize/Daihatsu Rocky) will also be contributing positively to Pecca.

Forecast. Unchanged.

Maintain BUY, TP: RM1.45. Maintain BUY recommendation on Pecca with unchanged TP of RM1.45, based on unchanged P/E of 13x. We remain positive on Pecca’s strong operating cash flow of RM23-24m per annum (for FY20-22) on top of its current net cash position of RM99.9m (translating into 54.4 sen/share).

Source: Hong Leong Investment Bank Research - 24 Feb 2020