PECCA Group Bhd’s venture into the personal protective equipment (PPE) business is a positive move, according to TA Securities, but the risk of oversupply in the future may lead to a further drop in average selling prices (ASPs).
“While we are positive on Pecca’s venture into the PPE business, the risk of oversupply in the future may lead to a further drop in ASPs as too many manufacturers are rushing in to fill the glut in the market.”
“We prefer to be more conservative in forecasting the PPE business until we see a more sustained order visibility,” said TA analyst Angeline Chin.
The analyst noted that Pecca has PPE products ready for sale, with the production of 3-ply masks ongoing, and the production of N95 masks commencing soon.
“The group is currently in discussions with several healthcare product distributors to market and distribute the PPE products to clientele in the commercial and healthcare industries.”
“Meanwhile, Pecca also targets to export the PPE products overseas and is applying for the certifications from the U.S. Food and Drug Administration (FDA) and CE Marking from the
European Union,” said Chin.
The analyst also noted that Pecca is expanding aggressively in the PPE business as well, with management guiding that the production of 3-ply masks is expected to be about 1 million pieces per day by the end of Sep 2020, compared to 250,000 per day in August.
Pecca is also targeting a capacity of 50 million masks per month by the second quarter of 2021.
“This is a huge expansion compared to the 18 million pieces per year guidance previously. Having said that, according to management, the PPE business will be reassessed annually to determine if the business is still viable to be continued in the future,” said Chin.
This follows Pecca announcing the results for the fourth quarter of its 2020 financial year, which saw revenue decreasing 57.7% year-on-year (yoy) to RM15.2 mil, mainly dragged down by temporary disruptions to operations and export markets due to the movement control order (MCO) and travel restrictions.
“According to management, the larger-than-proportionate decline in profit after tax was mainly due to the incurrence of fixed operating overheads.”
“The decline in REM (Replacement Equipment Manufacturer) business was mainly attributable to Certificate of Entitlement (COE) restrictions in Singapore and the slowdown in the European market,” said Chin.
Still, Pecca management has guided that the group has received positive forecasts from car manufacturers for the rest of the year, and that most orders are back to pre-Covid levels, with Perodua remaining the top contributor.
The group’s aviation licence is still pending as well, as gaining approvals for the aviation business have taken longer than expected.
“According to management, the group is still unable to carry out leather refurbishment services for commercial aircraft as the European Aviation Safety Agency (EASA) is still reviewing its application for a production organisation approval (POA) license. The approval has been delayed mainly due to travel restriction,” said Chin.
The analyst noted that the group is also still exploring merger and acquisition opportunities in Southeast Asian countries to accelerate its growth.
“According to management, the mergers and acquisitions will target those businesses that would complement its existing business in the same industry.”
“However, there is nothing concrete on the table yet as some of the potential candidates are in the midst of restructuring their businesses now,” said Chin.
TA maintains a sell call on Pecca, but raised their target price to RM1 from a previous 89 sen.
At 3.30pm, Pecca’s shares were last done at RM1.22, up a sen, with 4.17 million shares traded. – Sep 4, 2020
