Investment Highlights

• We maintain our UNDERWEIGHT recommendation on Tan Chong Motor (TCM) with an unchanged fair value of RM0.77/share pegged to an FY21F PE of 9x.
• TCM announced that its Vietnam subsidiary has entered into an MoU with King Long China, to discuss and negotiate for TCM to be the sole distributor of King Long microbus products in Vietnam for both its CKD and CBU models.
• Currently, King Long has only one product in Vietnam, which we believe to be the CBU XMQ6829Y coach. TCM has been the sole distributor of the said model since 2018. King Long specializes in the design, production and sale of various buses, minibuses and coaches. It has three manufacturing bases in China and produces 25.0K buses and coaches, as well as 30.0K mini vans annually.
• We are mildly positive on this news as it will help Tan Chong with additional CKD pipelines for its severely underutilized Danang plant in Vietnam. However, we understand that it is still in discussion and the group has not guided on a timeline on when the deal will be concluded. We also note that both the Nissan Vietnam CKD and CBU agreements with Nissan Japan have expired on 19 September and 30 September 2020 respectively.
• On a separate note, we reiterate that TCM Vietnam was also appointed by SAIC Motor as the exclusive importer and distributor of CBU MG brand vehicles on 18 May 2020. From the previous briefing, TCM guided that it would start to have material impact only in 4QFY20, but we are expecting a delay to this venture due to the global Covid-19 pandemic.
• We remain apprehensive on whether the entry of MG and King Long would be able to fully fill the void left by the exit of both Nissan CKD and CBU products.
• With multiple changes in the Tan Chong Vietnam unit; i.e. entry of King Long and the MG brand, exit of both Nissan CKD and CBU products, we will seek further clarification on its overall impact on its FY21–22F profits in TCM’s 3Q analyst briefing next month. For now, we make no changes to our estimates.
• We highlight that the all-new Nissan Almera 2020 will be launched this month in 3 variants, albeit no indication on price. We strongly believe it will face fierce competition against the Honda City CKD facelift and the Proton X50 – as these products share a similar price range and launch dates, but have more to offer in terms of driving experience, branding and product competitiveness.

Source: AmInvest Research - 20 Oct 2020