An apparel maker for the longest time, PCCS has made its intentions known that it is reinventing itself to become a hire purchase and medical devices player.

These two business diversifications took place ever since David Chan Wee Kiang, the son of its founder Chan Choo Sing, took over the company’s reins in 2020.

So far, David appears to be doing a good job, as PCCS has delivered decent results in the last two quarters despite the ongoing pandemic.

For its latest financial results for its first quarter ended June 30, 2021, the company not only declared better results, but even declared a 1 sen dividend.

This is one tell-tale sign of growing confidence.

For those interested, there is still time to qualify for the dividends. PCCS’ dividends goes ex on Oct 5, while payment date is on Nov 1.

PCCS recorded a 21.7% jump in net profit to RM1.97mil on the back of a 9.22% increase in revenue to RM114.5mil in revenue for its first quarter to June 30, 2021.

The company also remains financially solid with cash of RM52.87mil as of the period.

An interesting development was a media release by the company yesterday, on Sep 28.

It seems that its hire purchase business, which it bought into just in April this year, is about to contribute to its group profit.

In a release, PCCS said that it is kicking off its hire purchase business this month with a RM5mil loan book, and is expecting this division to start contributing in the current financial year ending March 31, 2022.

Its group managing director David Chan Wee Kiang is confident that Southern Auto Capital Sdn Bhd, the group’s hire purchase business will start contributing revenue to the group, now that Melaka has entered Phase Two of the National Recovery Plan.

Once Johor enters Phase Two, this pace of growth will be quickened. PCCS’ hire purchase business is based in Melaka and Johor.

Chan further added that should there be no more lockdowns, he is aiming to more than double the hire purchase loan book size in the next financial year.

The hire purchase industry is an extremely lucrative business..

Listed hire purchase player, Elk-Desa Resources Bhd recently announced its first quarter results, where the hire purchase division contributed gross profit of 43.53% while net margins were 30.85%.

In FY19 and FY20, ELK Desa’s gross margins for hire purchase were 50.47% and 43.94% respectively.

This could give a hint of the kind of profits PCCS will be able to garner.

Assuming PCCS dishes out its entire loan book before its financial year ended March 31, 2022, and assuming net margins of 20%, we can expect net profit contribution of roughly RM1mil (RM800,000 based on its 80% stake in the JV) from the hire purchase business.

Word on the street is that PCCS is targeting a loan book of between RM15mil to RM20mil for its financial year ending March 31, 2023.

At a 20% net margin, this would amount to a net profit contribution of between RM3mil to RM4mil. (RM2.4mil to RM3.2mil based on PCCS’ 80% stake)

For some background, PCCS entered into a joint venture with auto veteran, Justin See Kok Wah to form Southern Auto Capital Sdn. Bhd on April 19, 2021.

The purpose of this joint venture was to establish and operate used vehicles financing and insurance business in Melaka and Johor.

PCCS invested RM4mil for an 80% stake in the joint venture, while See held the remaining 20% with a capital of RM1mil. Hence, Southern Auto Capital is its wholly owned subsidiary of PCCS.

Interestingly, Justin has also acquired 2.74mil shares in PCCS, thus giving him a 1.28% stake in the company.

This could be a growing reflection of his confidence in the company.

The hire purchase business would appear to be one of PCCS’ key contributors before the medical devices segment kicks in.

The medical segment is clearly not forgotten, as in the same release, Chan said that PCCS’ manufacturing plant for its medical devices is now in construction.

Channel checks indicate that the group is setting aside some RM10mil for its medical devices venture.

“For the medical business, we are currently in the midst of applying for medical device registration with the authorities in countries such as Vietnam, Indonesia, Thailand, Malaysia and Singapore. We are optimistic that we will be able to complete the registration process in at least one of those countries before the end of the financial year ending March 31, 2022,” said Chan.

Earlier this year, LA Prima inked an exclusive shareholder agreement with Shanghai Shenqi Medical Co Ltd to market its cardiology related products namely the Drug Coated Balloon (DCB) within the Asia Pacific, excluding China and Japan.

Valuations

At its price of 48.5sen, PCCS currently only has a market cap of RM103.82mil.

While it made net profit of only RM3.1mil for FY21, this was due to Covid, which forced them to shut down, and as a result suffered from further supply chain issues.

Prior to the pandemic in FY20, the group delivered RM15mil net profit, and this was just from its apparel and labelling business.

PCCS has delivered now one quarter of reasonable results. It has three quarters to go before its year end in March 31, 2022.

Now that the MCO and worldwide shutdowns have mostly been lifted, there is a high likelihood it will do better than FY21.

Assuming its fortunes improves, and it makes net profit of RM10mil (which is still some 33% lower than FY20), based on its current price, it would be trading at a PER of 10.4x. 

Should it go back to making RM15mil, then it would only be trading at a PER of 6.9x.

Don’t forget that moving forward, it will have the hire purchase contribution this year onwards, and the medical contribution in FY23.

PCCS also has a current dividend yield of 2.17%, although this could increase if the company delivers better results.

For now, the worst appears to be over for PCCS, and the downside seems limited.

This can also be seen in some share buyback by Chan’s family vehicle, CCS Capital Sdn Bhd, which has started as of Sep 24.

Thing just might be looking up for the company moving forward.