PECCA Group (PECCA MK; BUY; TP: MYR1.60) - Sharp selldown unjustified?
- There are no new announcement from the company, 3QFY6/18 results are due out on 24th May – this will be followed by an analyst briefing on 25th May at 3pm in their office (Kepong). Our forecasts, BUY rating and TP of MYR1.60 (14.5x CY19 PER) are unchanged.
- Based on available information from MAA, the production numbers for Pecca's key clients (below), especially Perodua was very strong QoQ in 1QCY18 (2x QoQ), a positive indication for high volumes for Pecca; Toyota and Nissan were flattish. As such, stronger QoQ revenue could be expected.
However, due to a sudden surge in volume, higher overtime cost may be incurred in the quarter. Other factors that could negatively affect earnings include (i) USDMYR forex volatility which affects Pecca's leather purchases denominated in USD and (ii) higher foreign worker levy (Pecca employs ~250 foreign workers) effective 1 Jan 2018.
- At MYR0.81 (-25% from yesterday's close) currently (Mkt cap: MYR155.7m), valuations are attractive at 9.9x FY18 earnings (3.7x FY18 PER excluding its MYR97m net cash as at end-Dec 2017), backed by a 8+% yield (based on 70% DPR). Pecca is a beneficiary from strong Perodua numbers, driven by the successful launch of the Myvi. While there may be some downside to earnings coming from cost perspective, we expect Pecca to report better QoQ numbers given strong volume from Perodua. As such, 2HFY18 should be better than 1HFY18 (MYR5.7m); simply annualizing 1H18 earnings would bring Pecca to MYR11.3m for FY18 – this translates to 13.8x FY18 PER (5.2x FY18 PER ex cash).
- Our last report on 2QFY6/18 results is attached.
Ivan Yap | Analyst, Equity Research
Maybank Investment Bank Berhad (15938-H)
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