Negatives priced in; Growth to resume in FY21-22. HLIB maintains a BUY rating with a RM1.28 TP (+45% upside) based on 12.0x CY21 EPS, given its strong net cash position of RM50.7sen/share or 58.6% to share price, undemanding at 8.6x FY21 PE (52% lower than peers) and supported by attractive DY of 8.1%-9.2% for FY21-22 (which is much higher than prevailing FD rates of below 2% p.a. and average 10Y EPF dividend rate of 6.1%). Overall, we expect the automotive industry to benefit from SST exemption measures and Pecca is expected to continue leveraging on anchor client Perodua sales growth and potential future sales from Proton X-variant. Meanwhile, we are positive on the new PPE venture (targeted to contribute additional c. 15% to FY21- 22 revenue) as Pecca seeks to maximise its resource allocation (will start operation by early Aug) and to cushion the temporary slowdown of its automotive leather segment. Technically, Pecca is likely to stage a downtrend line breakout after a brief sideways trade with key resistances at RM0.895-1.01 whilst supports fall on RM0.835-0.85 zones. Cut loss at RM0.825.

PECCA daily: Steeply oversold; Pending for a downtrend line breakout

Pending for a downtrend line breakout. Following a 33% slump from 52-week high of RM1.30, Pecca is steeply oversold and is currently building a base near RM0.85 (100D SMA) and RM0.835 (lower BB). We expect the stock to recapture above the key 20D SMA resistance at RM0.90 after a brief sideways trade, before heading towards to the stiff downtrend channel at RM0.935. A successful downtrend line breakout will lift share prices higher towards our LT objective at RM1.01 (200D SMA). Cut loss at RM0.825

Source: Hong Leong Investment Bank Research - 23 Jul 2020