- It was reported in Nikkei business daily that Nissan plans to begin producing small cars and trucks in Myanmar with Tan Chong Motor Holdings (TCM) as early as this year. This comes hot on the heels of Suzuki’s announcement of restarting production there and Ford’s maiden entry into the market. To our understanding, Nissan models will initially be imported as CBUs from TCM’s new, left-hand drive model plant in Vietnam.

- Myanmar is mainly a second hand car market currently. It is said that over 80% of cars on the road are old models over 10 years old and according to a Myanmar government official, >90% of cars in Myanmar are used Japanese models. Vehicle penetration is still low at 3.7%. While Myanmar is Southeast Asia’s poorest country, it does have a large population of 63mil and is only beginning to open up its economy. Car import restrictions have eased since last year, but we understand duties remain extremely high (up to 165%).

- Nissan-TCM’s early entry into Myanmar is a strategic move, but we do not expect meaningful earnings contribution in the near term. We understand Nissan is targeting to initially sell cheap models in Myanmar and to convert second hand car buyers to new car buyers. We think that Datsun, which is Nissan’s affordable brand that will be gradually introduced into emerging markets, will likely be one of the first models to be introduced there.

- In our opinion, this will help contribute volumes to TCM’s Vietnam production plant within the next 12 months. As a recap, TCM’s Vietnam plant was launched in June this year with an initial capacity of 6,336 units/annum (on a single shift), which can be ramped up to >30K/annum at minimal additional investment.

- Though the plant is currently producing the Almera (c. 2K units in FY13 and 4K-5K in FY14F), it is expected to rise significantly when Datsun production commences in FY14-15F. We have yet to build this into our projections pending more concrete developments. As part of the license that was granted in Myanmar, TCM has a capital commitment of USD200mil (RM640mil) over a 30-year period. We gather that the Tan Chong group has acquired an 80 acre land in Myanmar (50 acre for TCM and 30 acre for APM) with an 80-year lease. TCM was awarded exclusive rights to distribute Nissan models in Myanmar earlier this year.

- Maintain BUY at unchanged FV of RM7.50/share.

Source: AmeSecurities