Investment Highlights

• We maintain BUY and raise our FV to RM2.34 (from RM2.10) based on an unchanged FY19F PE of 13.0x. We tweak our FY19– 20 projections by 12–17% after factoring in stronger assumptions for volume and cost efficiency.

• TCM’s FY18 core net profit of RM187mil shot past expectations, accounting for 209% and 231% of our FY projection and consensus respectively.

• This was due to an unusual strength in 4Q which saw the EBITDA margin for its core segment double its usual rate to 10%. 4QFY18 net profit of RM117.5mil tripled on a QoQ basis and was higher compared with the net loss of RM4.6mil in the previous year.

• This was attributed to a more favourable sales mix. TCM does not provide a detailed breakdown of its sales by model, but we note that it saw a stronger percentage contribution from passenger cars, MPV and window vans in 4Q.

• The notable increase in volume was seen for its window vans, while passenger cars and MPVs saw steady volume. Nevertheless, total sales volume still fell on a QoQ basis by 11% due to weaker sales for SUV and pickup vehicles.

• FY18 core earnings were stronger compared with the core net loss of RM74mil in the previous year. We identify the main factors to be: 1) the exceptional strength in 4Q; 2) the continuity in profit for the entire year vs. a single quarter in the black in FY17; 3) lower finance costs (by 14% YoY) due to a significant improvement in gearing to 0.3x from 0.47x as at end-FY17.

• We project a sales growth of 5.0%/3.0% in FY19/20 premised on the continuing strength in the sales of the Serena MPV and the potential introduction of new models from this year. MPV sales have been sturdy at about 2.1K/quarter for the past 9M. Key models ripe for an upgrade include the Almera, Teana, Grand Livina, X-Trail and Navara.

• We expect margins to moderate following an exceptional 4Q. However, margins should be formidable given the group’s continued efforts to rely less on volume-oriented models. TCM doubled its dividends to 4.0 sen/share in FY18 representing a payout of 26%. Current dividend yields are fair at 3.6%–4.8% based on a projected payout ratio of 30%.

• We retain a BUY based on the strength in Nissan sales, prospect of new models to further fortify margins and rebuild the Nissan brand. Risk factors include a spike in inventory levels, a severe weakening of the ringgit and worsening of its Indochina operations.

Source: AmInvest Research - 26 Feb 2019