AUTOMOBILE

PECCA GROUP
(PECCA MK EQUITY, PECC.KL) 4 Sep 2020

Plans to expand new PPE venture

Company report HOLD
Jeremie Yap (Upgraded)
jeremie-yap@ambankgroup.com
+603-2036 2304 Rationale for report: Company update

Price RM1.21
Investment Highlights
Fair Value RM1.05
52-week High/Low RM1.39/RM0.68  We upgrade our call to HOLD from UNDERWEIGHT with a
Key Changes higher fair value of RM1.05/share, pegged onto an FY21F
Fair value 
PE of 12x (from 10x), which is in line with its 3-year
EPS  historical mean forward PE.

YE to Jun FY20 FY21F FY22F FY23F  We increase our FY21–23F net profit forecasts by 8%, 9%
and 2% respectively to account for higher revenue from
Revenue (RM mil) 104.6 144.3 155.2 167.1
new key OEM supply contracts and key new model
Core net profit (RM mil) 7.9 16.3 19.4 20.8
FD Core EPS (sen) 4.2 8.8 10.5 11.2 launches in the group’s FY21F.
FD Core EPS growth (%) (52.3) 107.2 19.2 7.0
Consensus Net Profit (RM mil) - 14.2 18.5 19.1  We came away feeling mildly positive from Pecca’s virtual
DPS (sen) 4.6 3.5 4.2 4.7 analyst briefing yesterday. Below are the key highlights:
PE (x) 28.5 13.8 11.5 10.8
EV/EBITDA (x) 11.9 7.3 5.9 5.0
 Pecca noted that it will be supplying to four key models –
Div yield (%) 3.8 2.9 3.5 3.9
ROE (%) 5.0 9.5 10.7 11.2 the Proton X50 (tentative launch in October–November
Net Gearing (%) nm nm nm nm 2020), Mitsubishi Xpander (tentative launch in November
2020), Nissan Almera (tentative launch in 4QCY20) and the
Stock and Financial Data Perodua D55L (tentative launch in January 2021). From the
tone of the analyst briefing, we strongly believe that the
Shares Outstanding (million) 187.9
Market Cap (RM mil) 227.4 group is not a supplier to the upcoming Honda City. The
Book Value (RM/share) 0.90 group said that it is currently operating on an 85%
P/BV (x) 1.4 utilization rate on a one-shift basis.
ROE (%) 5.0
Net Gearing (%) -  The group highlighted that its production of 3-ply masks
Major Shareholders MRZ Leather Holdings Sdn Bhd has commenced, while that of the N95 face masks will
(45.6%) commence soon. The group is in active discussions with
Teoh Hwa Cheng (5.4%) several healthcare product distributors to market and
EPF (4.1%)
distribute the PPE products in both the commercial and
Free Float 161.7
Avg Daily Value (RM mil) 2.2 healthcare industries.

Price performance 3mth 6mth 12mth  The current annual production capacity of the 3-ply masks
stands at 18mil units (or 1.5mil units/month). The group
Absolute (%) 49.4 19.8 13.1 highlighted that it plans to increase its annual production
Relative (%) 51.7 16.9 18.8
capacity to 600mil units (or 50mil units/month) by 4QCY20.
However, Pecca has not confirmed the capacity expansion
2.5 2,000
and it has not shared the total capex guidance for this
1,800
2.0 1,600
expansion. We are maintaining our estimates for now.
1,400
While we believe that the expansion will be earnings
1.5 1,200
accretive for Pecca, margins will be squeezed due to: 1) the
1,000
1.0 800
potential implementation of a reduced ceiling price for face
600
masks to RM1.00 (from RM1.50 previously) by the
0.5 400
government; and 2) a low barrier of entry which results in
200
rising competition for the supply of face masks.
0.0 0
Apr-16 Apr-17 Apr-18 Apr-19 Apr-20  Pecca is also trying to export its PPE products to the
overseas market. It is currently applying for certifications
PECCA MK FBMKLCI Index from the US FDA and CE Marking from the European Union.
We believe that this may be an uphill task as the relevant
authorities are very particular on the make and quality of
the products.
Pecca Group 4 Sep 2020

 Moving on to Pecca’s aviation division, the group highlighted that there will yet be another delay in obtaining the
EASA (aircraft maintenance) licence until further notice, due to the Covid-19 pandemic.

 All-in, we are mildly positive on the group’s new venture into the PPE business as it will be earnings accretive. We
believe that the worst is over for the group, and its automotive division is expected to benefit from Proton and
Perodua’s dominance in the local auto sector and the improving sales of the two marquees due to the SST exemption.
We also take comfort on the fact that the group has confirmed that it will be supplying to the long-awaited national
SUVs – the Proton X50 and Perodua D55L. With that, we upgrade our recommendation to HOLD. Nevertheless, further
upside in share price may be limited as Pecca is already trading at a PE of 14x on FY21F EPS.

EXHIBIT 1: PPE ANNUAL PRODUCTION CAPACITY FORECAST

Source: AmInvestment Bank Bhd, Pecca Group

EXHIBIT 2: PRODUCT PIPELINE – PART 1

Source: AmInvestment Bank Bhd, Pecca Group

AmInvestment Bank Bhd 2

Pecca Group 4 Sep 2020

EXHIBIT 3: PRODUCT PIPELINE – PART 2

Source: AmInvestment Bank Bhd, Pecca Group

AmInvestment Bank Bhd 3

Pecca Group 4 Sep 2020

EXHIBIT 4: FINANCIAL DATA

Income Statement (RMmil, YE 30 Jun) FY19 FY20 FY21F FY22F FY23F

Revenue 131.4 104.6 144.3 155.2 167.1

EBITDA 23.5 14.9 23.4 27.7 30.8
Depreciation/Amortisation (4.1) (3.6) (4.6) (4.9) (5.2)
Operating income (EBIT) 19.4 11.3 18.9 22.8 25.6
Other income & associates 2.8 1.2 1.3 1.4 1.5
Net interest - 1.1 1.1 1.2 1.4
Exceptional items - - - - -
Pretax profit 22.2 11.3 21.3 25.4 28.5
Taxation (5.5) (2.5) (5.1) (6.1) (6.8)
Minorities/pref dividends 0.1 (0.1) (0.1) (0.1) (0.1)
Net profit 16.6 8.3 16.3 19.4 21.8
Core net profit 16.5 7.9 16.3 19.4 20.8

Balance Sheet (RMmil, YE 30 Jun) FY19 FY20 FY21F FY22F FY23F

Fixed assets 54.1 54.5 55.7 57.0 58.5

Intangible assets - - - - -
Other long-term assets 5.3 5.3 5.3 5.3 5.3
Total non-current assets 59.3 59.8 61.0 62.3 63.8
Cash & equivalent 49.3 49.7 55.5 64.2 74.2
Stock 18.9 19.0 21.9 23.1 24.3
Trade debtors 23.2 21.8 24.2 25.7 27.5
Other current assets 40.6 40.6 40.6 40.6 40.6
Total current assets 132.0 131.1 142.1 153.5 166.6
Trade creditors 19.2 19.0 21.5 22.7 24.3
Short-term borrowings - - - - -
Other current liabilities - - - - -
Total current liabilities 19.2 19.0 21.5 22.7 24.3
Long-term borrowings - - - - -
Other long-term liabilities 6.1 6.1 6.1 6.1 6.1
Total long-term liabilities 6.1 6.1 6.1 6.1 6.1
Shareholders’ funds 166.2 166.2 176.0 187.6 200.7
Minority interests (0.2) (0.4) (0.5) (0.6) (0.8)
BV/share (RM) 0.90 0.90 0.95 1.01 1.08

Cash Flow (RMmil, YE 30 Jun) FY19 FY20 FY21F FY22F FY23F

Pretax profit 22.2 11.3 21.3 25.4 28.5

Depreciation/Amortisation 4.1 3.6 4.6 4.9 5.2
Net change in working capital (3.5) 1.0 (2.6) (1.5) (1.4)
Others (6.5) (3.8) (6.2) (7.3) (8.3)
Cash flow from operations 16.2 12.2 17.0 21.4 24.0
Capital expenditure (5.3) (4.8) (5.8) (6.2) (6.7)
Net investments & sale of fixed assets - - - - -
Others 1.0 1.1 1.1 1.2 1.4
Cash flow from investing (4.2) (3.7) (4.7) (5.0) (5.3)
Debt raised/(repaid) - - - - -
Equity raised/(repaid) - - - - -
Dividends paid (10.0) (8.1) (6.5) (7.8) (8.7)
Others - - - - -
Cash flow from financing (10.0) (8.1) (6.5) (7.8) (8.7)
Net cash flow 2.1 0.4 5.8 8.7 10.0
Net cash/(debt) b/f 47.2 49.3 49.7 55.5 64.2
Net cash/(debt) c/f 49.3 49.7 55.5 64.2 74.2

Key Ratios (YE 30 Jun) FY19 FY20 FY21F FY22F FY23F

Revenue growth (%) 16.6 (20.4) 37.9 7.5 7.7

EBITDA growth (%) 69.3 (36.3) 56.9 18.0 11.4
Pretax margin (%) 16.9 10.8 14.7 16.4 17.1
Net profit margin (%) 12.6 7.9 11.3 12.5 13.0
Interest cover (x) nm nm nm nm nm
Effective tax rate (%) 24.8 22.1 24.0 24.0 24.0
Dividend payout (%) 60.0 97.4 40.0 40.0 40.0
Debtors turnover (days) 60 79 58 59 58
Stock turnover (days) 64 77 62 64 63
Creditors turnover (days) 65 78 61 63 63

Source: Company, AmInvestment Bank Bhd estimates

AmInvestment Bank Bhd 4

Pecca Group 4 Sep 2020

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