PECCA Group (PECCA MK; BUY; TP: MYR1.95) - Just getting warmed up

Good morning,

We have a NDR note on Pecca today.

PECCA Group (PECCA MK; BUY; TP: MYR1.95) - Just getting warmed up

• Ample growth opportunities. We recently hosted Pecca on a 1-day Non-Deal Roadshow in Singapore, meeting 12 fund managers. The feedback was positive; one of Pecca’s catalyst is the encouraging demand for the Perodua Bezza. Sustained momentum for Perodua Bezza (>7k units per month) offers upside to our forecasts which are unchanged for now. Also, a re-rating could come on the award of leather upholstery license for the aviation industry by DCA. Pecca is our Top BUY pick in the sector; MYR1.95 TP (13x CY17 EPS) unchanged.
• The Perodua Bezza factor to drive growth in FY17. In a press release over the weekend, Perodua has announced the booking number for its Bezza model which hit 19k units in just one month since order taking started. Meanwhile, 6k units have been delivered of which 42% were for the top variant (equipped with leather upholstery). This is ahead of Perodua’s (i) initial booking expectation of 15k units for the first month and (ii) 40% take-up for the top variant. In terms of unit sales for Bezza, we have assumed flat 7k units per month for FY17 with 35% for the top variant. Should this momentum sustain beyond 3 months, we see upside potential to our earnings forecasts for Pecca.
• Potential aviation win – a re-rating catalyst. Having secured the aircraft part refurbishment license from Malaysia’s Department of Civil Aviation (DCA) in Mar 2016, Pecca has also been appointed as vendor for AirAsia (AIRA MK; HOLD), ExecuJet and Airbus Helicopter. With over 200 existing aircrafts under the AirAsia Group, AirAsia’s collaboration with Mirus Aircraft Seating (a lightweight aircraft seat specialist from UK) to replace existing and supply new aircraft seats offers a big opportunity for Pecca to supply leather seat covers as part of a localisation initiative.