• Nissan Motor has suspended production at all six of its Japanese factories for two weeks. This is to allow investigations of misconduct in the inspection procedures, wherein final vehicle checks were found to be performed by technicians who were not certified.

• The technicians concerned had been using stamps indicating that they were certified to sign off on the final inspections.

• Japan's transport ministry had conducted its own inspection of Nissan factories and instructed the company to report on preventative measures by the end of October.

• This follows a recall of 1.2mil cars it has sold within Japan in the past three years, at a reported cost of 25 billion yen (US$222 mil).

• Fortune had reported that production and shipping for exports would continue as the certification process in final inspections did not apply there.

• This follows the scandal with Kobe Steel, wherein the company had admitted to fabricating data in certain components supplied to various major Japanese carmakers. Tan Chong Motor (TCM) had said that the impact would be minimal given that the CBU units directly from Japan were low-volume models such as the Infinity and Leaf. Their CKD kits were sourced from Thailand, in addition to the CBU Navara and Sylphy.

• We believe the impact on TCM will be limited given its small dependence on direct supply from Japan. However, we do not discount that there could be impact to the long-term reputation of the Nissan brand following these events within its home market.

• We maintain HOLD on Tan Chong Motor Holdings (TCM) with a FV of RM1.30/share based on an FY18F PBV of 0.3x – 1.5SD below its 3-year average. We reiterate that the challenge for TCM would be to abandon the defensive, and go on the offensive at the risk of seeing a new normal of low sales and continuing losses.

Source: AmInvest Research - 20 Oct 2017