Investment Highlights

• Maintain UNDERWEIGHT on Tan Chong Motor Holdings (TCM) with a lower FV of RM0.80/share (from RM0.84/share) derived by pegging to P/BV of 0.2x (unchanged) and we roll forward to FY24F as our base valuation year. Our neutral 3- star rating remains unchanged.

• 4Q23 net loss of RM54mil (+23% YoY) brings FY23 net loss to RM129mil (2.5x YoY), which was weaker than our estimate and consensus’.

• We refreshed our earnings model post-analyst briefing. TCM will still be loss making, but we lower our FY24F-25F losses by 18%/48%.

• Key inputs from management briefing are as follows:
  
  ➢ Expect a more challenging 2024F due to cost of living challenges, USD:MYR FX volatility and many new car model launches by competitors.
  
  ➢ Management’s turnaround plan hinges on introduction of new models to spur volumes and average selling prices (ASPs). However, only the Almera Black edition was announced, the management will announce the other models closer to launch time.
  
  ➢ Management states there is an on-going cost efficiency initiative driven by higher utilisation, factory process improvements and component procurement.
  
  ➢ The floating solar photovoltaic plant commenced operations on 5 Jan 2024. We estimate this can potentially generate RM14mil of revenues p.a.

• Our negative outlook on TCM is due to:
  
  ➢ The competitive environment has escalated with the entry of various Chinese car models.
  
  ➢ The weakening MYR against the USD will continue to dampen operating costs while other car manufacturers have structural advantages by hedging against JPY.
  
  ➢ Management’s reluctance to provide guidance (sales targets, new model line-ups, backlog orders, utilisation rates, solar feed-in tariff, capex) means low earnings visibility for our forecasts.

• The stock currently trades at 0.25x FY24 PBV, which is 25% higher than its 3-year historical average.

Source: AmInvest Research - 5 Mar 2024