Investment Highlights

• We maintain HOLD on Tan Chong Motor Holdings (TCM) with an unchanged FV of RM1.30/share based on an FY18 PBV of 0.3x - 1.5SD below its 3-year average.

• Net losses continued into a seventh consecutive quarter with 3Q17 core net loss of RM16mil while 9MFY17 core net loss of RM70mil was 33% higher on a YoY basis.

• The wider loss was largely due to a poor sales (YTD sales declined 32%) and ballooning costs (9M operating loss of RM46mil was 7x higher on YoY basis).

• TCM attributed this to the competitive environment and its inability to fully pass on the effects of an unfavorable exchange rate to its consumers.

• There has been some improvement in its inventory level (down 25% YoY to RM1.3bil) and while its gearing has declined to 0.54x (from 0.59x — after reducing its net debt position by RM1bil) — its interest expense remained high at close to RM20mil/quarter.

• It still has some way to go towards its targets of a lower inventory level of RM1.2bil and a net gearing of 0.50x.

• Nissan sales have been lower on a YoY basis for 16 straight months to Oct 2017. It is the only major auto player which has continued to see sales declining after a disastrous 2016. Nissan's market share of the nonnational side is now at 9% vs. 14% in 2016.

• TCM previously guided that 2018 would see some new Nissan models (it has not provided specifics, but volume has historically relied on the Almera, X-Trail and Navara). We have a conservative projection of 10% in annual growth for Nissan sales in FY18/19 pending a clear signal from management on the potential additions.

• We reiterate that the challenge for TCM would be to abandon the defensive, and go on the offensive at the risk of seeing continued declines in sales and persisting losses.

Source: AmInvest Research - 29 Nov 2017