4MCY16 TIV/TIP fell 19%/23% YoY

Weak car sales/production raise concerns on Pecca’s revenue especially in 4MCY16. The top six car marques, contributing 80% of Pecca’s revenue in FY15 (refer to table overleaf), saw YoY contraction in sales volume in 4MCY16, affected by weak consumer sentiment and price hikes. Pending 3QFY16 results due out on 24 May, we keep our forecasts unchanged but with downside potential. Maintain BUY; MYR1.90 TP (13x CY17 PER).

Our expectations could be optimistic

Pecca’s largest revenue contributor in FY6/15 was Toyota Boshoku UMW (28% to group revenue), with Pecca supplying OEM car seat cover and leather cut pieces to Toyota’s Vios, Camry, Fortuner and Hilux. In 4MCY16, Toyota’s sales/production fell 36%/16% YoY due to price hikes and the lack of new models. Fortunately, the new Hilux and Fortuner were launched in May 2016 and should contribute to revenue going forward. Meanwhile, Perodua and Nissan’s 4MCY16 sales/production also fell by 12%-19% YoY on price hikes and weak consumer sentiment. FY17:

Betting on Perodua’s sedan model

The key catalyst to Pecca’s FY6/17 growth would be contributions from the Perodua sedan model. We expect this model to be priced around the MYR32k-40k range, to compete against Proton Saga which accounted for ~40k-45k units in market size in 2015. In our projection for MBM (HOLD, TP: MYR2.05), we expect Perodua to sell 15k units of the sedan model in 2016, beginning August; conservative in our view, and 30k units in 2017. Other catalyst would come from job wins in the Malaysian aviation and Thailand auto market which are yet to be included in our forecasts.

Net cash position

With ~MYR59m IPO proceeds (net of estd. listing expenses of MYR5m), Pecca’s net cash should have ballooned to about MYR82m from MYR23m as at end-Dec 2015, representing ~27% of current market cap. This provides good support to balance sheet, with opportunities for M&As.

Source: Maybank Research - 23 May 2016