Affin Hwang downgrades Pecca to “Sell”, cuts TP to RM1.10

KUALA LUMPUR: Affin Hwang Capital research has downgraded PECCA GROUP BHD to a sell call given its demanding valuations and a likely earnings contraction in FY20-22E.

“We cut our FY20-21E EPS by 9%-10% after incorporating lower EBITDA margin assumptions of 17%-18%, below the 5-year average EBITDA margin levels of 19%,” it said.

It lowered the share’s target price to RM1.10 from RM1.20 previously.

Pecca’s core net profit of RM16.4mil in FY19 missed estimates due to a weaker 4QFY19 performance, said the research house.

“Pecca’s FY19 core net profit of RM16.4m (+62% yoy) was decent but was below expectations, accounting for 89% and 91% of street and our esimtates respectively”, it said.

The group’s recent quarter experienced 4% growth in revenue quarter-on-quarter but core net profit fell 35% q-o-q to RM2.9mil as EBITDA margin eroded by 6ppts to 12%.

Moving forward, the research house believes EBITDA margins may erode further due to the higher cost environment as well as low-margin sales mix.

However, Affin Hwang said the group’s key segments performed well in FY19 while the stronger demand for local car marques will grow the group’s OEM segment.

Source: TheStar