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PECCA
PPE VENTURE BEARING FRUITS?


HIGHLIGHTS
  • FORESEEING SOFTENING LEATHER UPHOLSTERY MARKETS, SEIZING OPPORTUNITY OF PPE MANUFACTURING
  • PECCA VENTURES INTO PPE MANUFACTURING THROUGH SOLID STEPS, SEEING ENCOURAGING, SUSTAINED DEMAND
  • MALAYSIAN AIMS FOR LOCAL PRODUCTION OF FACE MASKS
  • AFFIN HWANG EXPECTING RM12-14 MILLION REVENUE FOR FY20 & FY21.
  • PECCA MANAGEMENT IS UPBEAT ABOUT FY20 & FY21 PROSPECTS
  • A COMPANY WITH DECENT FUNDAMENTALS: CONSISTENTLY PROFITABLE, ZERO BORROWINGS
  • BUSINESS RISKS: WEAKENING LEATHER UPHOLSTERY BUSINESS, UNSUCCESSFUL VENTURE
  • PECCA CAUGHT OUT INTEREST, SPECIFICALLY TODAY, DUE TO TECHNICAL REASONS

FORESEEING SOFTENING LEATHER UPHOLSTERY MARKETS, SEIZING OPPORTUNITY OF PPE MANUFACTURING
PECCA manufactures, distributes and installs automotive leather upholstery for car, aircraft and furniture seat covers and accessories cover.
In the latest quarter of 20Q4, PECCA reported a loss-making quarter of -RM715k due to MCO lockdown.
Even though the government has introduced the sales tax exemption for passenger cars between 15 June 2020 to 31 December 2020 in order to boost new car sales in Malaysia, PECCA management continues to be cautious of the less optimistic leather upholstery market.
Source: 20Q4 Quarterly Report
At the same time, PECCA has identified the business opportunity in PPE manufacturing.
PECCA is seizing this opportunity through solid steps.

PECCA VENTURES INTO PPE MANUFACTURING THROUGH SOLID STEPS, SEEING ENCOURAGING, SUSTAINED DEMAND
We have compiled their progress for you below.
June & July 2020: Getting Ready for PPE Venture
  • PPE products have to be produced in a cleanroom setting. PECCA announced it will incur a capital expenditure of RM2.2 million for its venture into PPE manufacture and set up of cleanroom facilities.
  • It also will repurpose some of its existing production lines to produce PPE gears.

August 2020: Obtained Certification, Applying Export License to US & European Union (EU), Received Encouraging Sales Leads
  • In a filing with Bursa, PECCA stated it had obtained the ISO13485:2016 Quality Management System Certificate for the design and manufacturing PPE gears
  • PPE gears PECCA would manufacture include non-woven Jumpsuit, isolation full set cover, isolation cap cover, isolation shoes cover, face shield, 3-ply and N95 face mask for surgical/medical and general use. These products are expected to experience strong demand during-COVID and post-COVID.
  • PECCA eyed on the export market. PECCA applied certification from the US Food and Drug Administration (FDA) and the CE marking from European Union for its PPE offerings.
  • PECCA announced that it had decided to purchase additional face mask machinery to expand its production capacity. Managing Director, Datuk Teoh Hwa Cheng said the decision was made after PPE received encouraging sales leads for its PPE products.
  • PECCA’s cleanroom facilities for PPE gear manufacturing are already up and running.
As we can see, PECCA is taking solid steps in its PPE manufacturing venture.
By venturing into the PPE business, PECCA can fulfils the demand gap with quality PPE products at reasonable prices. This also allows PECCA to optimise utilisation of their idle resources and generate additional revenue.
Sources: Multiple News from The Edge

MALAYSIAN AIMS FOR LOCAL PRODUCTION OF FACE MASKS
On 10 August 2020, the Malaysian government stated there are plans for government subsidies or incentives to be given for the setting up of production facilities for face masks. And the plan is for the whole supply chain to be securely located within Malaysia itself.
While the price of face masks will be strictly regulated by the government, we believe PECCA could benefit from Malaysia’s aim to produce face masks locally, as well as increased PPE demand in the US and EU.
PECCA has been a down-to-earth company that focuses on delivering quality products efficiently – as exhibited in their existing, profitable leather upholstery businesses.
Source: The Star

AFFIN HWANG EXPECTING RM12-14 MILLION REVENUE FOR FY20 and FY21
Affin Hwang Capital Research expects PECCA’s FY2021 profitability to recover in view of an estimated revenue contribution from the PPE venture of RM12 million to RM14 million for FY2020 and FY2021.
Source: Affin Hwang Capital Research, 31 August 2020
If PECCA management provides the latest guidance in near future, the revenue figures could be further increased.

PECCA MANAGEMENT IS UPBEAT ABOUT FY20 & FY21 PROSPECTS
Medical sector is the key target customer segment for PECCA.
Based on unofficial yet reliable sources, PECCA management expects high demand of PPE products to sustain even after introduction of vaccine due to ongoing need for hygiene especially in the medical sector.
PECCA management is confident that the new venture of PPE manufacture will enhance income resiliency and contribute positively to Group earnings in FY20 and FY21.

A COMPANY WITH DECENT FUNDAMENTALS
PECCA has been consistently profitable in the last five years, with consistently zero borrowings.
PECCA has been able to practice their dividend policy of 40% and 50% dividend pay-out ratio every year since listing.
At a share price of RM1.24, PECCA offers a decent dividend yield of 3.74%.

BUSINESS RISKS: WEAKENING LEATHER UPHOLSTERY BUSINESS, UNSUCCESSFUL VENTURE
PECCA may suffer from weakening leather upholstery business. If COVID-19 is contained and medical PPE becomes oversupplied in future, PECCA’s venture into PPE manufacture may not bear fruits.

PECCA CAUGHT OUT INTEREST, SPECIFICALLY TODAY, DUE TO TECHNICAL REASONS

So, why exactly did PECCA catch our interest today?
PECCA caught our interest today because its share price had a breakout from its 2-week consolidation channel, supported by strong buying interests.

Zooming into the intraday share price movement, we noticed that concentrated buying interest emerged in PECCA after 3.30pm.
Based on PECCA’s bright prospects, we hypothesize that something is brewing - PECCA could be releasing some positive updates soon.
Let’s monitor PECCA’s news and announcement in near future.

DISCLAIMER
This article is produced based on our own study and analysis based on information available, for sharing purpose only. Our views could be impartial and/or inaccurate. There is no buy/sell recommendation.

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https://klse.i3investor.com/blogs/jomnterry/2020-09-02-story-h1513289414-PECCA_PPE_VENTURE_BEARING_FRUITS.jsp