KUALA LUMPUR (April 7): Pecca Group Bhd's share price hit an all-time high of RM3.66 yesterday — more than double the RM1.55 seen at end-December last year — as investors bet the company, which manufactures leather upholstery for car seats, will enjoy a positive spillover effects from the tax holiday granted for the purchase of vehicles.

Pecca's net profit for the cumulative six months ended Dec 31, 2020 (1HFY21) soared 27% to RM11.16 million from RM8.76 million in 1HFY20, as revenue grew almost 10% to RM72.61 million from RM66.27 million.

The leather car seat cover business was the largest revenue contributor to the group at 82.7% for 1HFY21, followed by its healthcare segment at 7.4%. The latter is mainly involved in developing, producing and supplying personal protective equipment (PPE) like face masks, face shields and PPE garments to the commercial and medical sectors.

The group's net profit for 1HFY21 was 33% higher than the RM8.39 million net profit it booked for the full FY20.

Pecca is expected to continue to enjoy the spillover effects of the vehicle sales tax exemption, given that the government has extended the initiative by another six months to June 30 this year from the initial Dec 31, 2020 end date.

If the vehicle sales tax exemption lifts Pecca's earnings in its 2HFY21 by another 20% compared with that of 1HFY21, the company's net profit could come in at RM13.39 million. This would bring its full-year FY21 earnings to RM24.55 million.

Based on a back-of-an-envelope calculation, this could equate to earnings per share (EPS) of 13.38 sen for Pecca's FY21, based on its outstanding shares of 183.47 million.

With that, and based on Pecca's last closing price of RM3.66 — which gives it a market capitalisation of RM688 million — Pecca should be valued at a price-earnings ratio of 27.35 times.

The company is upbeat about its prospects. On Jan 25, it declared an interim share dividend via the distribution of treasury shares on the basis of one treasury share for every 16 existing shares held by shareholders. The securities were credited to shareholders' accounts on Feb 26.

The company's largest shareholder, founder and managing director Datuk Teoh Hwa Cheng, is believed to be the biggest beneficiary under this share dividend scheme, given how much the company's share price has grown this year.

He received 643,928 dividend shares based on his direct shareholding in Pecca, and another 5.36 million shares via his indirect interest in the company held under MRZ Leather Holdings Sdn Bhd.

This gave him control over 55.6% equity interest in Pecca as of March 3 — comprising a direct interest of 5.97% or 10.95 million shares, and an indirect interest of 49.63% or 91.05 million shares.

Hwa Cheng's spouse Datin Sam Yin Thing, meanwhile, saw her direct interest rise to 2.37% or 4.36 million shares, with an indirect interest of 49.63% or 91.05 million shares, after receiving a total of 256,255.36 shares under the share dividend scheme.

Their son, Teoh Zi Yi, got 18,562 dividend shares, which raised his direct stake in the company to 0.17%, comprising 315,562 shares. Zi Yi was appointed to the board as an executive director of the company on Oct 16, 2020.

Despite the strong earnings prospect, none of the three analysts tracking Pecca gave it a "buy" call. The average 12-month target price given on the stock was RM1.91.

Affin Hwang Capital analyst Chow Wei Nien, who retained a "hold" call on Pecca, previously said in a March 1 note that the company's share price had already priced in all the positive factors, though Chow revised the target price for Pecca to RM2 from RM1.65. This view is is based on an unchanged target price-earnings ratio of 16 times calendar year 2021 EPS.

Nevertheless, Chow raised his earnings forecasts by 21% for Pecca's FY21 to FY23, after inputting higher sales for its car seat covers and healthcare contribution. As such, the research house is anticipating Pecca to generate an annual net income of RM23.1 million for FY21, and further grow to RM23.9 million and RM24.7 million for FY22 and FY23, respectively.

AmInvestment Bank analyst Jeremie Yap, meanwhile, also put Pecca on "hold", albeit with a higher fair value of RM1.77, as he viewed that the stock's upside was capped as it was trading at a price-earnings ratio of 16 times on FY21 EPS.  

Hong Leong Investment Bank Research analyst Daniel Wong, who has a positive view on the company's earnings outlook for 2HFY21, also rated the stock a "hold" in a March 3 note. Despite his view that Pecca would be able to leverage on the strong car sales that are expected from the extension of the vehicle sales tax exemption — on top of the contribution from its new PPE business — Wong gave the stock an unchanged target price of RM2.12.