PETALING JAYA: Pecca Group Bhd, which makes leather upholstery for the automotive industry, is now able to bid for more upholstery jobs in the aviation industry after receiving the green light from the Department of Civil Aviation (DCA).
Apart from its core business of producing leather upholstery for the automotive sector, the Kepong-based company also refurbishes aircraft parts, including arm rests, toilet lids, side panels, food trays and fairings.
Executive director Michael Tan told StarBiz that with the DCA’s approval, its 60%-owned Pecca Leather Aviation Services Sdn Bhd (PAviation) could now vie for other leather upholstery jobs with various commercial airlines and private jet companies here.
“We already have small trial contracts with AirAsia Bhd, Malindo Air and Singapore-based ExecuJet,” he said, declining to disclose the contract values.
ExecuJet is a private aviation jet company, which provides a range of aviation services, including maintenance, aircraft management and charter.
Listed six months ago, Pecca has a market value of RM372.2mil and derives 78% of its revenue from supplying leather car-seat covers.
Since the company made its announcement on the DCA’s approval on Thursday, its shares rose 6.45% to settle at RM1.98 on Friday.
“Our new work scope consists of the wrapping, cutting and sewing of leather or fabric seat covers, as well as refurbishing cabin interior sidewalls and ceiling panels,” said Tan, adding that parts that needed to be restored would be handed over to PAviation for reburbishment.
According to Maybank Investment Bank Research, Pecca is the first homegrown company to bag a specific leather upholstery licence for the aviation industry from the DCA.
It has reiterated a “buy” call on the stock with a higher target price of RM2.18, as it has pegged Pecca to 14.5 times calendar year 2017 earnings per share, from 13 times previously.
“The opportunities in the aviation industry, coupled with sustained momentum in its Perodua exposure, are key drivers for earnings growth,” it said.
Meanwhile, Pecca’s refurbishment works were carried out in its 90,000-sq-ft manufacturing facility (excluding office building) located in Kepong.
“We have machines that cut, sew airbags and do lamination, embossing, perforration and embroidery, but our main product is leather upholstery for car seat covers for the automative industry,” Tan said.
“For the past five years, we have invested RM2.5mil to RM3mil per year in capital expenditure to upgrade machinery at our plant,” he revealed.
Pecca’s clientele include original equipment manufacturers (OEM) and pre-delivery inspection (PDI) market segments for vehicles such as Perodua, Proton, Toyota, Mitsubishi, Nissan, Hyundai, Suzuki and Peugeot.
“And despite the automative industry’s challenging landscape, we have continuously secured new projects for the mass production of leather car seat covers and the recent win was Perodua Bezza,” noted Tan, adding that this would provide some catalysts going forward.
Tan said leather upholstery would continue to be included in cars despite the soft market conditions to grow sales.
“Clients normally expect better bargains before making any buying decisions when the market is soft.
“Therefore, car manufacturers will try to refrain from offering cash discounts as this would distort the collateral value of the vehicle. Moreover, leather upholstery is usually offered as a free item to induce sales,” he said.
Tan remains optimistic of the company’s growth prospects because of its well-diversified customer base.
Despite Pecca’s 68% market share in the OEM and PDI segments, the opportunity is still huge in the replacement market segment, according to him.
“Only 35% of locally-assembled cars are pre-equipped with leather, while the remaining 65% comes installed with fabric seat covers,” said Tan.
He revealed that Pecca had plans to expand into Thailand’s automative industry, which has bigger industry volume, and since its customers such as Nissan and Mitsubishi are also present there.
The company recently secured a first trial order from Honda Access for Smart Fit supply.
In terms of dividends, Pecca declared a single-tier dividend of two sen per share for the third quarter ended March 31, 2016 and fourth quarter ended June 30, 2016, respectively.
“We are confident that we can maintain our 40% dividend policy payout from profits, but this does not mean that we will continue paying dividends every financial quarter, going forward,” he said,
The company posted a net profit of RM2.78mil against revenue of RM33.57mil in its fourth quarter ended June 30, 2016.