A Good Start to FY20

Pecca reported a good set of results. 1QFY20 core net profit grew by 34% yoy to RM4.7m (+64% qoq), which was in line with consensus but above our expectations. The earnings surprise was mainly due to higher-than-expected margins and interest income. In light of the better 1QFY20 results, we raise our FY20-22 EPS forecast by 9-10%, and increase our 12-month TP to RM1.20 (from RM1.10). At a 13x FY20E PER, the valuation looks fair. Reaffirm HOLD.

1QFY20 Core Profit Jumped 34% Yoy, on Higher OEM Sales

Pecca’s 1QFY20 core profit jumped 34% yoy to RM4.7m, driven by revenue growing 29% yoy to RM35m. The revenue increase was mainly due to higher OEM revenue: 1QFY20 revenue almost doubled to RM23.5m on stronger sales of Perodua vehicles (+12% yoy to 57k units). Also, we gather that the 30% yoy increase in leather cut pieces’ revenue was a result of new orders from Subaru China. The positives, however, were partially offset by lower contribution from PDI sales (-45% yoy to RM2.7m, in tandem with the 46% yoy decline in Nissan sales volume to 4k units) and REM/export sales (-40% yoy to RM3.6m; decrease in orders from Singapore due to restrictions on Certification of Entitlement).

Sequentially, Earnings Grew by 64%; Above Our Expectations

Although 1QFY20 revenues fell by 3% qoq (mainly due to weaker REM revenue), Pecca’s 1QFY20-core net profit jumped by 64% qoq to RM4.7m as the EBITDA margin expanded by 5.7ppts to 17.2%. Pecca’s 4QFY19 EBITDA margin of 11.6% had been affected by the: i) low-margin sales mix and ii) higher administration cost: a one-off employee performance programme worth >RM2m, which will be staggered on an annual basis moving forward. Overall, the results were in line with street expectation but above ours, accounting for 26% and 30% of consensus and our full-year estimates. No dividends were declared for the quarter.

Maintain HOLD With Higher TP of RM1.20

We raise our FY20-22 EPS estimates by 9-10%, after imputing the strong 1QFY20 results and higher margin assumptions. In tandem, we raise our 12-month TP to RM1.20 (from RM1.10, based on an unchanged 13x CY20E PER). At a 13x FY20E PER, the valuation has largely priced in the likely earnings improvement, in our view. We reaffirm our HOLD rating.

Source: Affin Hwang Research - 2 Dec 2019