• Pecca posted a record core net profit of RM6.7m (+60% yoy) for 2QFY21, backed by solid deliveries of leather car seat covers and its growing healthcare segment
• In tandem, 6MFY21 core net profit grew 33.1% yoy to RM11.8m, coming in above our (62%) and consensus (58%) expectations
• We raise our FY21-23E earnings by c.21%, inputting higher sales for its car seat covers and healthcare contribution. Maintain HOLD with a higher TP of RM2.00

6MFY21 Core Net Profit Up 33% to RM11.8m – Above Expectations

Pecca posted a 2QFY21 core net profit of RM6.7m (+60% yoy), underpinned by higher deliveries of its leather car seat covers and growing contribution from its healthcare segment. In particular, the original equipment manufacturing (OEM) division saw sales jump 28% yoy to RM25.5m, backed by strong demand from automotive manufacturers amid sturdy domestic car sales. Meanwhile, healthcare division sales grew to RM5.4m in its maiden year for 6MFY21, from strong demand for its 3-ply and 4-ply masks. Tracking a higher EBITDA margin – likely in part lifted by the healthcare sales – YTD core net profit came in at RM11.8m (+33.1% yoy), above our and consensus expectations. The variance to our expectation was mainly on higher-than-expected OEM car seat sales.

Higher Healthcare Contribution Lifts Sequential Performance

On a qoq basis, revenue and core net profit similarly grew strongly, by 19.1% and 25.8% respectively. Notably, the healthcare segment saw a full contribution during the quarter, while the supply of leather cut pieces rose significantly on increased local demand. Looking ahead, we foresee local car sales likely tapering amid the reinstatement of the MCO early in the year, but gradual improvement should materialise from 2Q21 onward, as strict lockdowns ease and the sales tax exemption spurs demand. We envisage its healthcare segment (12% revenue contribution in 2QFY21) remaining sturdy with prevention measures likely remaining in place throughout 2021.

Maintain HOLD

In view of the results outperformance, we raise our earnings estimates by c.21% for FY21-23E, inputting higher contribution from both the auto and healthcare segments. Post-earnings revision, our TP is raised to RM2.00, based on an unchanged target PER of 16x CY21 EPS. At a 16.9x FY21E PER, we believe positives are likely priced in; thus, we maintain our HOLD rating. Key upside/downside risks: 1) higher/lower-than-expected car sales volume, 2) decrease/increase in raw-material prices, 3) higher/lower-thanexpected contribution from the healthcare segment and 4) fluctuations in the Ringgit/US$ rate.

Source: Affin Hwang Research - 1 Mar 2021