Investment Highlights

• We maintain our UNDERWEIGHT recommendation on Tan Chong Motor (Tan Chong) with an unchanged fair value of RM0.65/share, based on 0.15x P/B. This is at a 50% discount to Tan Chong’s 3-year average historical P/B of 0.3x to reflect the lack of visibility in the company’s pipeline of new model launches.

• Beat expectations. Tan Chong registered a core net profit of RM41.5mil in 4Q21 (vs. 3Q21: core net loss of RM44.5mil, and 4Q20: core net loss of RM64.0mil), which we deem above our forecast of a RM45.1mil net loss and consensus’ net loss estimate of RM58.5mil for the full year. This narrows Tan Chong full-year core net loss to RM19.0mil (vs. 2020 core net loss of RM163.5mil).
  Besides recording a strong sales volume during the quarter driven by the pent-up demand, the company’s margin also improved as a result of lower operating expenses and better sales mix.

• Nissan 4Q21 sales volume grew 141% QoQ to 4,615 units driven by year-end promotions and pent-up demand. This lifted Tan Chong’s 4Q21 revenue 97% QoQ to RM866.9mil. Notably, its Vietnam’s operation broke even at the EBITDA level during the quarter, narrowing its losses to RM2.4mil in 2021 from RM84mil losses last year.

• Following the positive results, we adjust our 2022F and 2023F earnings forecasts to RM22.4mil and RM31.1mil from a net loss of RM23.1mil and net profit of RM2.5mil respectively.

• However, the company’s market share in the domestic automobile market remains under threat given the competitive environment. The national brands have been expanding their product offerings, tapping into the midlevel i.e. B-segment and C-segment space which was previously dominated by non-national Japanese marques.

• Visibility on the company’s future product pipeline also remains cloudy. It has been more than a year since the company launched a new model (Nissan Almera in Oct 2020) and should the trend continue, it could have a negative impact to the brand’s marketability.

Source: AmInvest Research - 1 Mar 2022