HLBank Research Highlights

Author: HLInvest   |   Latest post: Fri, 22 Jan 2021, 10:33 AM


Tan Chong Motor Holdings - Recovery in Malaysia, but drag by Vietnam

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TCM’s outlook has improved following implementation of SST exemptions measure and new launch of Almera (and upcoming Navara). However, Indochina may remain dragged by Vietnam’s loss making operations due to termination of distribution and assembling rights for Nissan models. TCM is working with SAICSGM-Wuling as replacement to Nissan in Vietnam. We maintain our HOLD rating with unchanged TP of RM1.10 based on unchanged 10x PE on FY21 EPS.

Results recap. TCM reported an improved 3QFY20 PATMI of RM1.5m (vs. LATMI - RM53.3m in 2QFY20 and -RM1.1m in 3QFY19) driven by improved group sales volume across all geographical operations QoQ and lower net finance costs YoY.

Malaysia. Total group sales volume in Malaysia recovered strongly 193.3% QoQ following SST exemptions and PENJANA measures since Jun 2020. However the sales volume still dropped 7.8% YoY, mainly due to phasing off the previous generation Almera while lacking of attractive models for the period. The recent launch of all new Almera (orderbook at 1k units) in Nov will improve domestic sales volume in coming months, while new Navara model will be introduced in 2021. However, we believe there will be stiff competition for the market pricing segment given similar launch timing of Honda City, Toyota Vios, Toyota Yaris as well as Proton X50. Management is targeting 10k sales for Almera model in 2021. With regards to RM180m excise tax owing to the Royal Malaysian Customs Department, management is appealing against it, pending a new hearing date set by the court.

Indochina. Similar to Malaysia, total sales volume in the Indochina markets improved 35.4% QoQ due to pent up demand and gradual removal of lockdown measures in Indochina. However, sales volume declined slightly 2.6% YoY, dragged by Cambodia market. Vietnam operations returned back to positive EBITDA during the quarter while other Indochina operation was LBITDA, affected by negative forex impact. Nissan Motor Japan has terminated TCM’s distributorship and assembling rights for Nissan cars in Vietnam effective end Sep 2020. The group is currently collaborating with King Long, SAIC and SGM-Wuling to utilize its Danang assembly plant potentially in 2H21 for localized MG SUV models.

Lower inventory level in 3QFY20. The group’s inventory level has declined substantially to RM861m in 3QFY20 (vs. RM1.5bn in 4QFY19), mainly due to improved sales following implementation of sales tax exemption in Malaysia and discontinuation of Nissan assembly line and distributorship right in Vietnam. We expect the inventory level to normalise back above RM1bn level, as sales start to recover by end FY20.

Forecast. Unchanged.

Maintain HOLD, TP: RM1.10. We reiterate HOLD recommendation on TCM with unchanged TP of RM1.10 based on unchanged 10x PE to FY21 earnings. We expect TCM to leverage on SST exemptions period and the recent launch of Almera and upcoming Navara for sales growth in 4QFY20 and FY21. Nevertheless, we are still relatively concern on the potential stiff competitive market environment in Malaysia (several new launches by major OEMs are targeted in 4QFY20 and FY2021), while Indochina remains dragged by Vietnam operations in the near term.

Source: Hong Leong Investment Bank Research - 27 Nov 2020

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