Pecca reported 2QFY22 core PATMI at RM6.0m (+8.2x QoQ; -10.4% YoY), which brought 1HFY22’s sum to RM6.6m (-43.8% YoY). We deem the result within HLIB’s expectation (31.0%) and consensus (28.6%), as we expect continued strong earnings in coming quarters on stronger car production and delivery in tandem with the economy recovery along with SST exemption extension to Jun 2022. We maintain our SELL recommendation with unchanged TP: RM1.90 based on 18x PE on CY22 profit, as we believe current share price has overshot the group’s fundamentals.

Within expectations. Recorded 2QFY22 core PATMI of RM6.0m for 2QFY22 (+8.2x QoQ; -10.4% YoY), which brought 1HFY22 core PATMI to RM6.6m (-43.8% YoY). We deem the result within HLIB’s expectation (31.0%) and consensus (28.6%), as we expect strong rebound in coming quarters following the reopening of Malaysia’s economy and extended SST exemption to end Jun 2022.

Dividend. None.

QoQ. Core earnings improved +8.2x to RM6.0m, as overall group operations recovered during the quarter after government allowed the gradual reopening of economy since Sep (Phase 1 NRP since Jun). Leather car seat sales recovered substantially with accelerated deliveries during the quarter. However, healthcare segment dropped on lower volume.

YoY. Despite the higher sales revenue, core earnings dropped -10.4% to RM6.0m, affected by the increase in logistics and shipping costs.

YTD. Core earnings dropped by -43.8% to RM6.6m, due to long period of strict lockdown measures till mid-Aug 2022 (since Jun) and only gradually resumed full production capacity towards early Sep 2022.

Outlook. We expect earnings to rebound in coming quarters as OEMs ramp up productions (especially Perodua) to meet the high order backlogs and strong new orders, taking advantage of the SST exemption (extended to Jun 2022) while demand remains strong for its new PPE segment. Pecca has recently signed a MoU with MARii for the market expansion of products, as well as collaboration in electric vehicles (EVs) parts and components technology for the company and its subsidiaries. The group has also acquired 4.31 acres of land in Serendah (from UMW) for the purpose of constructing a second manufacturing facility, catering for future orders from both existing and new markets.

Forecast. Unchanged.

Maintain SELL, TP: RM1.90. We maintain our SELL recommendation on Pecca with unchanged TP: RM1.90 based on 18x PE on CY22 profits. We believe the current share price has overshot the fundamentals of Pecca’s earnings growth with dividend yields at 3.1% for FY22-24.

Source: Hong Leong Investment Bank Research - 28 Feb 2022