Pecca reported 2QFY21 PATMI at RM6.7m (+30.3% QoQ; +57.9% YoY) and 1HFY21 at RM11.8m (+33.8% YoY), within HLIB expectation (44.2%) but above consensus (58.1%). For FY21, we expect Pecca to continue leveraging on the strong automotive demand during SST exemption period and also robust demand for its new venture PPE mask. Following the run up of the share price, we downgrade our recommendation to HOLD (from Buy) with higher TP of RM2.12 (from RM1.84) based on higher 15x P/E (from 13x) on CY21 profit. The group has high net cash position of RM72.4m (41.9 sen/share).

Within expectation. Reported a core PATMI of RM6.7m for 2QFY21 (+30.3% QoQ, +57.9% YoY) and RM11.8m for 1HFY21 (+33.8% YoY), within HLIB expectation (44.2%), but above consensus (58.1%). Net EIs in 1HFY21 was RM661k, mainly due to one-off Covid-19 related expenses (positive cases in the manufacturing facility) incurred in 2QFY21.

Dividend. None.

QoQ, YoY & YTD. Core earnings improved by +30.3% QoQ, +57.9% YoY and +33.8% YTD, mainly driven by: (i) increasing leather seat volume in 1QFY21 and 2QFY21; and (ii) new contribution from healthcare segment in 2QFY21.

Outlook. We expect sustained earnings into 2HFY21 with the extension of SST exemptions to 30 Jun 2021 as well as strong demand for its new PPE segment. Its major client Perodua has set a sales target of 240k units in CY21. Pecca will also leverage on the upcoming attractive model launches: Proton X50 (4QCY20), Mitsubishi Expander (4QCY20) and Perodua Ativa (1QCY21).

Forecast. Unchanged.

Downgrade to HOLD, TP: RM2.12. Following the outperformance of share price (+176% since mid-March 2020), we downgrade our recommendation to HOLD (from Buy) on Pecca with higher TP of RM2.12 (from RM1.84) based on PE of 15x (from 13x) of CY21 profits. We believe the current share price has reflected the earnings growth of Pecca’s leverage onto the strong automotive demand during SST exemption period as well as its new PPE venture. Pecca boasts a strong net cash position of RM72.4m (translating into 41.9 sen/share).

Source: Hong Leong Investment Bank Research - 1 Mar 2021