Pecca reported 4QFY21 core PATMI at RM0.4m (-93.7% QoQ; -77.1% YoY) and FY21 at RM18.1m (+69.9% YoY), within HLIB’s expectation (92.2%), but below consensus (74.8%). For FY22, we expect a stronger 1H, driven by accelerating CKD car productions in order to meet the current high order-backlogs and continued new orders prior to the end of SST exemptions by end CY2021. Management is also confident of robust demand for its new venture involving PPE masks. However, we maintain SELL recommendation with unchanged TP: RM2.00 based on unchanged 15x P/E on CY22 profit, as we believe current share price has overshot the group’s fundamentals.

Below expectation. Reported a core PATMI of RM0.4m for 4QFY21 (-93.7% QoQ, -77.1% YoY) and RM18.1m for FY21 (+69.9% YoY), within HLIB’s expectation (92.2%), but below consensus (74.8%). Net EIs in FY21 amounted to RM1.1m, driven mainly by the reversal of impairments for inventories and receivables amounting to RM2.0m (mostly in 3QFY21), which was partially offset Covid-19 related expenses of -RM0.9m (mostly in 2QFY21).

Dividend. None.

QoQ/YoY. Core earnings dropped drastically to RM0.4m (-93.7% QoQ; -77.1% YoY), mainly affected by the mandatory capacity shutdown during June month and adjustments on administrative expenses during the quarter.

YTD. Core earnings improved 69.9% YTD, mainly due combinations of: (i) higher leather sales volume; (ii) new contribution from healthcare segment since 2QFY21; and (iii) low base effect during the implementation of MCO1.0 in 3QFY20, resulting sudden stop in production and order delivery,

Outlook. We expect earnings to rebound into 1HFY22 as OEMs rush to meet order delivery prior to the end of SST exemptions by 31 Dec 2021 while demand remains strong for its new PPE segment.

Forecast. Unchanged.

Maintain SELL, TP: RM2.00. We maintain our SELL recommendation on Pecca with unchanged TP of RM2.00 based on unchanged PE of 15x of CY22 profits. We believe the current share price has overshot the fundamentals of Pecca’s earnings growth. Although Pecca boasts a strong net cash position of RM 78.1m (translating into 42.6 sen/share), dividend yield has become less attractive (FY22-23: 2.7%) based on current share price.

Source: Hong Leong Investment Bank Research - 14 Sept 2021