Strong demand for ‘new’ Myvi augurs well for Pecca

PETALING JAYA: Pecca Group Bhd is expected to see more demand for leather seats with strong interest in the refreshed Perodua Myvi and new model line-ups from Toyota, said Affin Hwang Capital.

As Pecca is the largest automotive leather upholstery player in Malaysia, the research house is projecting Pecca’s revenue to grow at a compound annual growth rate of 6.4% for FY17-20, with more mainstream cars featuring leather content in entry-level segment cars.

“As the main leather car seat supplier to Perodua, strong demand of the new Perodua Myvi augurs well for Pecca. We estimate that Pecca will see car seat orders increase by an additional 21% from the continued demand for Perodua’s top-selling model, MyVi, and its other models. While Perodua is aiming to sell 209,000 units in 2018 (+2% year-on-year), an improved product mix and thus higher demand for leather seats will likely drive the additional growth we are expecting,” said Affin Hwang.

With a net cash position of RM97.5 million in 1Q18 (40% of current market cap), it also said Pecca is likely to reward shareholders with a higher pay-out in lieu of an ambitious expansion.

“We believe the group will continue to adopt a cautious stance in its expansion strategy, in view of the weak sentiment surrounding the automotive market. We believe Pecca would potentially increase its dividend payout to 6 sen (based on a payout ratio of 63%) in FY18 in tandem with its stronger earnings and limited near-term capex requirements.”

It raised Pecca’s 2018-19 earnings per share forecasts by 12-13% on revised car seat sales assumptions. It upgraded Pecca to buy from hold, with a revised 12-month price target of RM1.52.

“Pecca’s current 2018 ex-cash price-to-earnings ratio of 8.1 times looks attractive and its strong net cash position of RM97.5 million provides ample room for a higher dividend payout and earnings-accretive merger & acquisition,” said Affin Hwang.

It said potential re-rating catalysts include penetration into leather upholstery for commercial aviation and the Thailand export market.