Pecca reported a weak 3QFY20 PATMI at RM0.2m (-95.1% QoQ; -99.5% YoY) and 9MFY20 at RM9.2m (-28.7% YoY), below HLIB expectation (57.2%) and consensus (58.1%). We expect worsening upcoming 4QFY20 result (loss making) affected by the extended MCO. In the longer term, Pecca will continue leverage on the recovery of Perodua sales post MCO. Pecca may also benefit from the upcoming new Perodua D55L (Toyota Raize/Daihatsu Rocky), Proton X50 and Nissan Almera. Adjust earnings lower for FY20, FY21 and FY22 by - 69.2%, -5.3% and -0.4%, after imputing lower volumes. Maintain BUY recommendation with adjusted lower TP of RM1.02 (from RM1.05) based on unchanged 10x P/E on CY21 profit, given its high net cash position of RM90.1m (50.7sen/share) and strong leverage on Perodua sales recovery.

Below expectations. Reported a core PATMI of RM0.2m for 3QFY20 (-95.1% QoQ, -95.5% YoY) and RM9.2m for 9MFY20 (-28.7% YoY), below both HLIB expectation (57.2%) and consensus (58.1%). We expect worsening result in the subsequent 4QFY20 quarter, affected by the extended implementation of MCO since 18 Mar to 9 Jun 2020.

Dividend. None for the quarter. Paid out 3 sen/share for 1HFY20.

QoQ/YoY/YTD. Core earnings dropped by 95.1% QoQ, 95.5% YoY and 28.7% YTD, mainly affected by lower sales volume during the quarter due to combinations of: 1) production disruption of Perodua at the earlier part of the quarter; 2) extended long holiday due to Chinese New Year; and 3) implementation of MCO by end of the quarter. Furthermore, the leather pieces exported to China has also dropped due to China’s city lockdowns as part of controlling measures on Covid-19 outbreak during the quarter.

Outlook. We expect worsening upcoming 4QFY20 (loss making), dragged by the extended MCO as well as cautious consumer sentiment during the quarter. Nevertheless, we anticipate Pecca to be able to ride through the quarter given its high net cash position of RM91.0m (as at Mar 2020) with ongoing cost-cutting measures. Pecca is expected to continue to leverage on major client national marque Perodua sales recovery post MCO for the marque’s well known impression of affordability, quality and value for money. Upcoming Perodua D55L model (Toyota Raize/Daihatsu Rocky) will also be contributing positively to Pecca in FY21. In addition, Pecca will also be potentially benefiting from localization program of upcoming new launches of the highly anticipated Proton X50 and Nissan Almera in FY21.

Forecast. Adjust earnings lower for FY20, FY21 and FY22 by -69.2%, -5.3% and -0.4%, after imputing lower volumes.

Maintain BUY, TP: RM1.02. Maintain BUY recommendation on Pecca with adjusted lower TP of RM1.02 (from RM1.05), based on unchanged P/E of 10x on CY21 profits. We remain positive on Pecca’s net cash position of RM91.0m (translating into 50.7 sen/share) and the group’s strong leverage to the recovery of Perodua sales post MCO.

Source: Hong Leong Investment Bank Research - 1 Jun 2020