PECCA TO RIDE ON DEMAND FOR NEW CARS
Affin Hwang revises target price to RM1.52, sees higher dividend payout
PECCA Group Bhd is expected to ride on the encouraging demand for the refreshed Perodua Myvi and new Toyota model lineups, which will spur orders for the company’s leather seats.
Affin Hwang Capital said this was because more mainstream cars in the entry-level segment now featured leather content.
Pecca is the largest automotive leather upholstery player in Malaysia.
“Potential re-rating catalysts for the company include penetration into leather upholstery business for commercial aviation and the Thailand export market,” it said.
The research firm projected Pecca’s revenue to grow 6.4 per cent from the financial years ended June 30 last year to 2020.
“We raise our 2018-2019 earnings per share forecasts by 12 to 13 per cent on revised car-seat sales assumptions,” it said.
Affin Hwang has upgraded its recommendation on Pecca from “hold” to “buy”, with a revised 12month target price of RM1.52.
“The company has a strong net cash position of RM97.5 million, which would provide ample room for a higher dividend payout,” it added.
Pecca was the main leather seat supplier for Perodua and the stronger demand for the new Myvi augured well for the carmaker, it said.
“We estimate the company’s car-seat orders to increase by an additional 21 per cent, helped by the continued demand for Perodua’s top selling model and other models.”
Affin Hwang said an improved product mix and higher demand for leather seats was expected to further drive growth, in line with Perodua’s sales target of 209,000 units this year.
“Pecca is likely to reward shareholders with a higher dividend payout in lieu of an ambitious expansion. A net cash position of RM97.5 million in the first quarter of this year represented 40 per cent of its current market capitalisation,” it said.
The research house believed Pecca would continue to adopt a cautious stance in its expansion strategy, in view of the weak sentiment in the automotive market.
“Pecca would potentially increase its dividend payout to six sen in this financial year due to stronger earnings and limited near-term capital expenditure requirements.”
“We forecast higher demand for the 1.5L Advance variant that would lead to about 5,400 leather seats per quarter,” the investment bank added.