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.

• Key points from our meeting with management yesterday:

1) New Nissan cars may come in the second half of 2018.

Management was not able to name the models that would be launched but emphasized that they would serve to recover margins although not necessarily have a major impact on volume.

TCM wants to shift away from the mass-market segment where the price war is most intense.

We understand that it wants to at least maintain the sales level from 2017, which would be a welcome reprieve after the declines seen in the past two years. Furthermore, TCM stressed that the launches would be the first in a longer term pipeline which we deem would serve to revive and sustain excitement for the Nissan brand here.

2) TCM aims to cut inventory to below RM1bil.

The group has continued its commendable work of trimming its inventory. Inventory was reduced to RM1.3bil recently from a peak of RM2bil in early 2016.

TCM said it would need to stock up ahead of the new launches and aim to retain its inventory at RM1bil-RM1.2bil from there. We believe that TCM could shape its inventory base into one that is more manageable and of higher quality, if it successfully reduces its reliance on cheaper mass-volume cars.

3) A bigger vision for Indochina.

TCM's Vietnam operation is in the red while Laos, Cambodia and Myanmar are said to be at breakeven. Vietnam still sees a poor utilisation rate (below 50%) of its Danang plant.

TCM guided that the recent signing to produce King Long buses in a new US$7mil plant is a precursor to establishing itself as a contract manufacturer with production facilities for passenger and commercial vehicles, to be manufactured in the existing and new Vietnam plants respectively. We believe that this could take years to execute, and we do not see it to be a strong earnings catalyst as yet.

• We are positive on the signs of a new strategy TCM is taking up for the year. 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 - 18 Jan 2018