Pecca Group Bhd
(Feb 24, RM1.04)
Maintain buy with an unchanged fair value of RM1.46: Pecca Group Bhd’s first half of financial year ended Dec 31, 2019 (1HFY20) core net profit of RM8.5 million (-7% year-on-year [y-o-y]) was in line with our expectations, accounting for 50% and 47% of our and consensus forecasts respectively.

Pecca’s automotive (car seat cover division) top line grew 7% y-o-y  for 1HFY20 to RM56 million. The original equipment manufacturing (OEM) segment registered 1HFY20 revenue of RM43.4 million (+33% y-o-y), an improvement we believe was highly attributed to the increase in production of new car models. The replacement equipment manufacturing (REM) segment recorded lower 1HFY20 revenue of RM6.7 million (-38% y-o-y) due to lower orders from Singapore as a result of the Certificate of Entitlement restrictions in the country. Meanwhile, its pre-delivery inspection segment achieved lower sales revenue of RM5.8 million (-32% y-o-y) due to a slowdown in production.

We noticed an impressive improvement in Pecca’s sales of leather cut pieces, registering a total revenue of RM7.2 million (+56% y-o-y). This was attributed to a new project secured in China. We believe that the group is supplying leather cut pieces to Suzuki.

Pecca managed to further strengthen its balance sheet with a net cash position of RM99.9 million for the second quarter of FY20 (2QFY20). Forward dividend yields of 5.2%–5.6% are attractive based on a payout projection of 60% for FY20 ending June 30 until FY22.

We continue to like Pecca because it is the sole supplier of leather car seats, a key beneficiary of Perodua’s dominance in the local automotive sector; its expansion plan to China being put in place; and the group’s potential entry into the lucrative aircraft seat segment if it manages to secure a licence to provide OEMs/REMs for the non-national aircraft. — AmInvestment Bank, Feb 24