• Pecca reported a good set of results: 1QFY21 core net profit grew by 13% yoy to RM5m, thanks to better EBITDA margin and a lower effective tax rate.
• The 1QFY21 results tracked ahead of our expectations but were within the street’s full-year estimates. 
• In light of the better 1QFY21 numbers, we raise our FY21-23E EPS by 42%-45%. Maintain Hold with a higher TP of RM1.60.

1QFY21 core profit rose by 13% yoy; profit margins better-than-expected

Despite a 5% yoy decline in revenue, Pecca’s 1QFY21 core profit rose by 13% yoy to RM5m. The improved performance was driven by higher EBITDA margins and lower effective tax rate of 18% (vs. 1QFY20: 21.5%; on reinvestment tax allowance). Overall, the results were ahead of our expectations but within the street’s, accounting for 42% and 29% of our and consensus full-year estimates. 1QFY21 EBITDA margins managed to surprise us on the upside with a 4.1ppt gain yoy, which was aided by austerity measures put in place and production efficiency.

1QFY21 core earnings swung to the black

On a qoq basis, Pecca’s revenue rose to RM33m (>100% qoq) and core earnings saw a strong recovery to RM5m (vs. 4QFY21 core loss of RM1m) respectively. The improvement was largely due to the: 1) lockdown ease, 2) cheaper car prices on sales & service tax (SST) exemption, and 3) backed by maiden contributions from the healthcare segment/face masks of RM0.5m. On a segmental basis, most segments experienced sequential sales gains, except for leather cut pieces (-49% qoq to RM0.7m) likely due to softer sales to Subaru China, we believe.

Anticipating a year of two halves

Going ahead, the automotive outlook should improve sequentially, but we think car sales may taper off in 2HFY21, assuming the government does not extend the SST exemption period. That said, new model launches from Proton, Perodua and Nissan (ie, Proton X50, Perodua D55L and Nissan Almera) as well as gradual contribution from the healthcare segment may help to cushion the blow, in our view.

Maintain Hold with higher TP of RM1.60

We raise our FY21-23E EPS by 42%-45%, after imputing the strong 1QFY21 results and higher margin assumptions. In tandem, we raise our 12-month TP to RM1.60 (from RM1.11), based on an unchanged 16x CY21E PER. At 15x FY21E, its valuation looks fair, as we think that the share price has largely priced in the positives. Key upside/downside risks include: 1) higher/lower-than-expected car sales volume, 2) decrease/increase in raw-material prices, 3) higher/lower-than-expected contribution from the healthcare segment and 4) fluctuations in the Ringgit/US$ rate.

Source: Affin Hwang Research - 30 Nov 2020