246 employees of Pecca have been tested positive for Covid-19 and Pecca has carried out sanitization works for all its premises and temporary suspended its operation from 21 Dec 2020 to 27 Dec 2020 (subject to approval from MOH). There will be short term negative impact to Pecca’s operations and profits. However, we still maintain BUY on Pecca with lower TP of RM1.68 (from RM1.75) based on unchanged PE 12x on adjusted lower CY21 profit, as we are not overly concern on the long term prospect of Pecca.

NEWSBREAK

Pecca has announced that 246 employees (out of total 597) have been tested positive for Covid-19 post a recent group wide testing for all employees and guards. Pecca is co-operating and working closely with the Ministry of Health (MOH) to implement the mitigating steps to contain the spread of COVID-19 at the premises, and safeguard the health of employees who may have been exposed to the virus. Sanitization works have been carried out on all the premises inclusive of office, production, hostel & cafeteria, while production has been temporary suspended from 21 Dec 2020 to 27 Dec 2020 (subject to approval from MOH).

HLIB’s VIEW

Short term negative impact. The positive cases of Covid-19 will affect the group’s operation in the short term due to production suspension and risk of limitation on production capacity once MOH approves for operation resumption. The group may need to incur higher production cost for increase in shifts/overtime (catch up the temporary loss of productions) in order to meet the current high demand (especially for Perodua production). Furthermore, we estimated the impact from loss of earnings and cost of testing for the group wide employees and sanitization works could be c. RM1-1.5m.

Forecast. We Cut Our Earnings for FY21 by 5.1% to RM23.7m, While Maintaining FY22-23 Earnings.

Maintain BUY, TP: RM1.68. Maintain BUY recommendation on Pecca with lower TP of RM1.68 (from RM1.75) based on PE 12x on CY21 profit. Despite the short term negative impact, we are not overly concern on the long term prospects of Pecca.

Source: Hong Leong Investment Bank Research - 29 Dec 2020