PECCA Group (PECCA MK; BUY; TP: MYR1.90) - Weak car sales to affect earnings

PECCA Group (PECCA MK; BUY; TP: MYR1.90) - Weak car sales to affect earnings

• 4MCY16 TIV/TIP fell 19%/23% YoY. Weak car sales/production raise concerns on Pecca’s revenue especially in 4MCY16. The top six car marques, contributing 80% of Pecca’s revenue in FY15, saw YoY contraction in sales volume in 4MCY16. Pending 3QFY16 results, we keep our forecasts unchanged but with downside potential.
• FY17: Betting on Perodua’s sedan model. The key catalyst to Pecca’s FY6/17 growth would be contributions from the Perodua sedan model. We expect this model to be priced around the MYR32k-40k range, to compete against Proton Saga which accounted for ~40k-45k units in market size in 2015. In our projection for MBM (HOLD, TP: MYR2.05), we expect Perodua to sell 15k units of the sedan model in 2016, beginning August; conservative in our view, and 30k units in 2017.
• Net cash position. With ~MYR59m IPO proceeds (net of estd. listing expenses of MYR5m), Pecca’s net cash should have ballooned to about MYR82m from MYR23m as at end-Dec 2015, representing ~27% of current market cap. This provides good support to balance sheet, with opportunities for M&As.