This article first appeared in The Edge Malaysia Weekly, on April 18 - 24, 2016.
PECCA Group Bhd, a manufacturer of leather car seat covers that is slated to debut on the Main Market of Bursa Malaysia on April 19, has ambitious expansion plans. The company intends to venture into the retail segment of leather car seat covers by setting up 50 retail outlets across Malaysia to cater for after-market sales. In addition, Pecca will diversify into the aviation sector by providing it with leather upholstery and the refurbishment of leather parts.
Pecca Group has been in the business of making leather upholstery for the automotive industry, through Pecca Leather Sdn Bhd, since 2000, starting off in the original equipment manufacturer (OEM) and pre-delivery inspection (PDI) segments of the then growing industry.
The company’s first big win came after four years, when it was awarded with the contract to supply leather car seat covers for the Proton Waja. Subsequently, the company ventured overseas. Its main export markets — the Netherlands, US and Australia — each contributes about 5% of revenue currently. It also exports to the UK, Singapore and New Zealand.
OE (original equipment) fit leather car seat covers, which Pecca designs based on the manufacturer’s specifications, is the main revenue generator for the group, making up about 55% of revenue for its financial year ended June 30, 2015 (FY2015).
Its Smart fit leather car seat covers, which can be installed directly on the car seat and were developed specifically for the PDI segment, have gained in popularity among Japanese car manufacturers.
Major customers include Toyota Boshoku UMW Sdn Bhd, Fuji Seat (M) Sdn Bhd and Lear Automotive Malaysia Sdn Bhd. Pecca manufactures and supplies OE fit leather car seat covers for some Toyota, Perodua and Proton car models. The company also manufactures and supplies OE fit and Smart fit leather car seat covers for Nissan models under Tan Chong and Sons Motor Company Sdn Bhd.
In 2015, Pecca’s market share stood at 67.7%, based on the number of installed leather upholstery passenger vehicles in OEM and PDI segments.
Pecca Group’s initial public offering (IPO) involves the selling of 47.8 million new shares (25.42% of the enlarged issued and paid-up capital) at RM1.42 apiece. It also involves an offer for sale of 43.3 million existing shares (23.05% of the enlarged issued and paid-up capital) by its promoters MRZ Leather Holdings Sdn Bhd, group managing director Datuk Teoh Hwa Cheng and his wife Datin Sam Yin Thing, who will raise RM61.53 million and see their stake reduced from 99.28% to 50.99% post-IPO.
Some 40% or RM26.97 million of the RM67.87 million gross proceeds (RM62.87 million net proceeds) raised from selling the new shares in Pecca Group is slated for working capital while 25.2% or RM17.1 million will be used to repay bank borrowings. The rest will be used for expansion purposes, including RM7.55 million for new machinery, RM5 million for the construction of a new production floor, RM3.75 million for the opening of new retail outlets, RM1.5 million to set up a market presence in Thailand and RM1 million for the expansion into aviation.
Independent market researcher Frost & Sullivan says in a report accompanying the IPO prospectus that prospects for Pecca’s growth are promising, given the positive outlook for the automotive industry.
“An increasingly wealthy population, supportive institutional policies and greater localisation of content by non-national OEM are the key drivers of the automotive leather industry,” it says.
Pecca’s books reveal that the company has made substantial progress where earnings are concerned. Revenue more than doubled to RM129.5 million in FY2015 from RM62.13 million in FY2012, while net profit tripled to RM17.94 million from RM5.64 million. For the five-month financial period ended Nov 30, 2015, net profit was RM7.21 million and revenue, RM56.27 million.
According to its proforma financial statements, Pecca will have about RM65 million cash and no borrowings post-utilisation of the IPO proceeds. The company intends to distribute 40% of its annual net profit as dividend, but the actual dividend will depend on its performance.
Save by subscribing to us for your print and/or digital copy.
P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.