One of Pecca’s employees has been tested positive for Covid-19 and Pecca has carried out sanitization works for all its premises and temporary suspended its operation until further clarification from MOH. There will be short term negative impact to Pecca’s operation and potential increase its production costs for increase in shifts and overtimes to catch up on production orders. However, we still maintain BUY on Pecca with unchanged TP of RM1.75, as we are not overly concern on the long term prospect of Pecca.

NEWSBREAK

Pecca has announced that one of its employees has been tested positive for Covid-19 post a recent group wide testing for all employees and guards. Pecca is co-operating and working closely with the Ministry of Health (MOH) to implement the mitigating steps to contain the spread of COVID-19 at the premises, and safeguard the health of employees who may have been exposed to the virus. Sanitization works have been carried out on all the premises inclusive of office, production, hostel & cafeteria, while production has been temporary suspended pending further advice from MOH.

HLIB’s VIEW

Short term negative impact. The positive case of Covid-19 will affect the group’s operation in the short term due to production suspension and risk of limitation on production capacity once MOH approves for operation resumption. The group may need to incur higher production cost for increase in shifts/overtime (catch up the temporary loss of productions) in order to meet the current high demand (especially for Perodua production). Furthermore, we estimated the cost of testing for the group wide employees and sanitization works could be up to c.RM1m.

Forecast. Unchanged.

Maintain BUY, TP: RM1.75. Maintain BUY recommendation on Pecca with unchanged TP of RM1.75 based on PE 12x on CY21 profit. Despite the short term negative impact, we are not overly concern on the long term prospects of Pecca.

Source: Hong Leong Investment Bank Research - 20 Nov 2020'