Pecca reported 4QFY20 PATMI at RM1.6m (+678.0% QoQ; -65.7% YoY) and FY20 at RM10.7m (-39.7% YoY), above both HLIB expectation (220.0%) and consensus (136.4%) due to drastic cost control measures in 4QFY20. For FY21, we expect Pecca to leverage on the strong automotive demand during SST exemption period. Pecca is also fast ramping up its PPE production in FY21. Maintain BUY recommendation with unchanged TP of RM1.28 based on unchanged 12x P/E on CY21 profit. The group has high net cash position of RM78.4m (44.2sen/share).

Above expectations. Reported a core PATMI of RM1.6m for 4QFY20 (+678% QoQ, -65.7% YoY) and RM10.7m for FY20 (-39.7% YoY), above both HLIB expectation (220.0%) and consensus (136.4%), mainly due to higher-than-expected sales volume and drastic cut in operational, administration and distributional expenses during the quarter.

Dividend. Declared second interim dividend 1.64sen/share (ex-date: 15 Sep), making full year dividend of 4.64sen/share or dividend yield of 4.1% for FY20.

QoQ. Core earnings improved to RM1.6m in 4QFY20 (vs. RM0.2m in 3QFY20), mainly driven by substantial cost cutting measures implemented, which saw gross margin improved while administrative and distributional costs dropped to RM0.8m (from RM4.2m).

YoY & YTD. Core earnings dropped by 65.7% YoY and 39.7% YTD, mainly affected by lower sales volume due to: (i) implementation of MCO by end of the 3QFY20; and (ii) production disruption of Perodua at the earlier part of the financial year.

Outlook. We expect strong earnings rebound in FY21 with the implementation of SST exemptions as well as strong demand for its new PPE segment. Its major client Perodua announced increasing production rate to 25k units per month (from usual 20k units) for the period of Aug to Dec months. Pecca will also leverage on the upcoming attractive model launches: Proton X50 (4QCY20), Mitsubishi Expander (4QCY20) and Perodua D55L model (1QCY21).

Forecast. Unchanged.

Maintain BUY, TP: RM1.28. Maintain BUY recommendation on Pecca with unchanged TP of RM1.28 based on PE of 12x of CY21 profits. We are positive on Pecca’s strong leverage onto the strong automotive demand during SST exemption period as well as its new PPE venture as Pecca continues to maximise its resource allocation. Pecca boasts a strong net cash position of RM78.4m (translating into 44.2 sen/share).

Source: Hong Leong Investment Bank Research - 1 Sept 2020