Affin Hwang upgrades Pecca to 'buy'

KUALA LUMPUR: Affin Hwang Capital Research upgraded Pecca Group Bhd to a Buy and raised its target price to RM1.52 based on an unchanged 2018E PER Of 16x on expected demand for leather seats backed by strong demand for the refreshed Perodua Myvi and new model line-ups from Toyota. 

"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," said the research firm.

It said Pecca is likely to reward shareholders with a higher pay-out in lieu of an ambitious expansion as it sits on a net cash position of RM97.5mil in 1Q18, which is 40% of current market cap.

"We believe Pecca would potentially increase its dividend payout to 6 sen (based on a payout ratio of 63%) in FY18E in tandem with its stronger earnings and limited near-term capex
requirements."

Affin Hwang Research raised its 2018-19 forecasts by 12% to 13% on revised car seat sales assumptions.