KUALA LUMPUR: Pecca Group Bhd is expected to ride on the encouraging demand of the refreshed Perodua Myvi and Toyota new model line-ups, spurring demand for its leather seats.
Affin Hwang Capital said Pecca Group is the largest automotive leather upholstery player in Malaysia, citing that more mainstream cars are featured with leather content in entry-level segment cars.
“Potential re-rating catalysts include penetration into leather upholstery for commercial aviation and the Thailand export market,” it said.
The research firm projected Pecca Group’s revenue to grow 6.4 per cent for the financial year ending June 30, 2017 (FY17) to FY20.
“We raise our 2018-2019 earnings per share forecasts by 12 per cent to 13 per cent on revised car seat sales assumptions.”
Affin Hwang upgraded its recommendation from “hold” to “buy” with a revised 12-month target price of RM1.52 per share.
“Pecca has strong net cash position of RM97.5million, which would provide ample room for a higher dividend payout.”
Pecca Group is the main leather car seat supplier to Perodua and stronger demand of the new Perodua Myvi augurs well for the company.
“We estimate the company to see car seat orders increase by an additional 21 per cent from the continued demand for Perodua’s top selling model and its other models.”
Affin Hwang said an improved product mix and higher demand for leather seats is expected to further drive growth, in line with the Perodua’s sales target of 209,000 units this year.
“Pecca Group is likely to reward shareholders with higher dividend payout in lieu of an ambitious expansion. A net cash position of RM97.5 million in the first quarter of 2018 represented 40 per cent of its current market capitalisation.”
The research house believed Pecca Group would continue to adopt a cautious stance in its expansion strategy, in view of the weak sentiment in the automotive market.
“We believe Pecca Group would potentially increase its dividend payout to six sen in FY18 due to stronger earnings and limited near-term capital expenditure requirements.”
Affin Hwang expects the original equipment manufacturer FY18 revenue, representing about 70 per cent of Pecca Group’s revenue, to jump 15 per cent year-on-year on additional car seat orders.
“Assuming Perodua achieves its sales target of 209,000 vehicles in 2018. We forecast higher demand for the 1.5L Advance variant that would lead to about 5,400 leather seats per quarter.”