KUALA LUMPUR (Jan 7): Shares of car leather upholstery maker Pecca Group Bhd rose on Friday morning after announcing a three-for-one bonus issue.

At 10.21am, the stock was up two sen or 0.59% to RM3.42. The counter saw 601,400 shares traded.

Pecca on Thursday proposed to undertake a bonus issue of up to 564 million new ordinary shares in Pecca on the basis of three bonus shares for every one existing share.

It said that in addition to rewarding its shareholders for their loyalty and continued support, the exercise will serve to provide existing shareholders with greater equity participation while maintaining their percentage of equity shareholding.

This will also potentially result in the improvement of trading liquidity of Pecca's shares by increasing the number of shares in issue, which results in its shares being more affordable and encourage greater participation by a wider group of public shareholders and investors, it added.

Analyts said they are neutral on the proposed bonus issue.

“We are neutral on the proposal as the issuance of bonus shares will have a neutral impact on the group’s earnings. However, it will help to improve the stock’s trading liquidity, allowing for greater participation by investors and broadening the group's shareholder base,” said TA Securities analyst Angeline Chin.

While maintaining Pecca's financial results forecast for the financial year ending June 30, 2022 (FY22) and FY23, she believes Pecca’s share price has run ahead of its fundamentals.

“Also, we believe the share price has factored in the positive news about its personal protective equipment (PPE) venture,” she said.

She maintained a "sell" on the stock with an unchanged target price of RM2.22, based on 2022 price earnings ratio of 16 times.

AmInvestment Bank maintained its "underweight" call on Pecca with an unchanged fair value of RM1.99 based on sum-of-parts valuation.

“We are neutral on the announcement. The bonus issue may help to improve the stock’s liquidity but there will be no change in the company’s fundamentals,” it said.

At 25 to 23 times of price earnings of FY22 to FY23 earnings per share, it said Pecca’s share price is trading at an unjustifiable premium compared to its peers.

“The company’s earnings prospect remains unexciting and limited by the saturated domestic automotive market,” AmInvestment said.

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Pecca plans three-for-one bonus issue