Pecca Group Bhd ("Pecca") share price correction has made it an attractive value proposition as earnings recovery is set to normalise while growth trajectory remains intact from the aviation segment. BUY with target price of RM 1.09 based on 14.6x PER FY19 premised on the automotive sector average valuation.

Pecca was listed on Main Board of Bursa Malaysia back in April 2016 at RM1.42. Pecca remains the market leader with over 40% market share in the automotive leather upholstery supplying to Perodua, Toyota, Nissan, Honda, Proton, Mitsubishi, amongst others with 30% for exports. Pecca's major client Perodua's best seller Myvi and upcoming brand new MPV launch will continue to provide room for growth as the company have increased capacity from 120,000 to 170,000 units annually. 

Pecca's next growth catalyst would be their aviation division where they are awaiting Production Organization Approval ("POA") from Department of Civil Aviation ("DCA") for commercial aircraft seat cover replacement program to supply and refurbish leather seats for major airlines based in Malaysia. Currently, Pecca's has the approval from DCA for part refurbishment and leather upholstery job scope. This limited scope has generated minimal revenue but has great potential once they obtained POA as they would be able to target Airasia and Malindo fleet of aircraft where estimated cost would be approx. RM0.5m per aircraft. 

Pecca's balance sheet remains solid in net cash position with RM97m translating to RM0.51/share. Furthermore, it has minimum 40% dividend payout ratio with current yield of above 6%. Management is constantly exploring and reviewing potential M&A with their cash pile. Recovery in earnings will see EPS growth of 37% in FY19 and 15% in FY20. 

Source: Rakuten Research - 1 Oct 2018