Pecca delivered a strong set of results – 3QFY19 core net profit more than doubled to RM4.4m due to a low base effect. The Group’s 9M19- core net profit of RM13.6m (+80% yoy) is above consensus and our expectations, constituting 85%80% of street/our full year forecasts respectively. We raised our FY19-21E EPS by 4-9% and 12-month TP to RM1.20 (from RM1.14). The continued strong demand for Perodua models, coupled with a slew of popular replacement models should boost Pecca’s top-line growth moving forward. Reaffirm BUY.

Higher Due to Low Base in 9MFY18, Above Expectations

Pecca’s 9MFY19 core net profit almost doubled to RM13.6m due to a low base effect in 9M18. Recall, Pecca previously suffered from a double whammy of (i) weaker revenue growth (due to mismatch/supply disruption of Perodua production and lower Nissan car seats) and (ii) lower EBITDA margin (hit by lower production efficiency, higher levy for foreign workers and higher overtime and maintenance costs). Moving past the 9M18 story, Pecca’s key segments have done well in 9M19 (Fig 2), thanks to the increased in demand for leather seats from Perodua and Proton (OEM), Nissan (PDI) and export sales (REM), we believe. No dividend was declared during the quarter.

3QFY19 Core Earnings Fell 22% Qoq

Sequentially, earnings were seasonally weaker because of the shorter working period due to festive season in 3QFY19. Although revenue increased by 3% qoq, Pecca’s 3QFY19 earnings softened by 22% qoq to RM4.4m as EBITDA margins have gradually normalised to 18% in 3QFY19, as expected.

Reaffirm BUY With Higher TP of RM1.20

We have raised our FY19E EPS forecasts by 8% after incorporating (i) the stronger-than-expected 9MFY19 earnings and raised FY20-21E EPS by 4- 9% on higher revenue growth as we expect Pecca to benefit from the increase localisation programme by carmakers and continued demand for Perodua models. After rolling forward our valuation base to CY20E, we have raised our TP to RM1.20 (from RM1.14) based on unchanged 13x PER multiple. At 11x FY19 PER/5% yield, valuation looks attractive. BUY.

Source: Affin Hwang Research - 27 May 2019