- We reaffirm our BUY call on Tan Chong Motor (TCM) at an unchanged fair value of RM7.50/share. Our SOP-derived valuation continues to peg TCM at 13x of FY13F earnings. TCM launched the 2nd generation Grand Livina on Sept 24. The new model sports a somewhat more aggressive exterior with redesigned bumpers, grille, headlamps, tail lamps, side mirrors and alloys.

- There are still three variants offered:- (1) 1.6 manual transmission (OTR price: RM87,367); (2) 1.6 auto (RM90,372); and (3) 1.8 auto (RM100,578). Customers have the option to include additional accessories at additional cost. Pricing for the new Grand Livina is marginally higher (See Table 1) but the 1.8 litre variant has a 1.8% price increase.

- Management is targeting a minimum sales volume of 1,000 units/month and is looking to sell up to 2,500 units by year end. Since the soft launch at the end of last month, the new Grand Livina has garnered bookings of 500 units. There is an upside risk to our forecast, depending on achievability of this target, as our current projections factor in 940 unit sales monthly. Nissan’s MPV market share stood at 8.4% in 1H13, but we see it increasing to c.18% with the inclusion of the Serena Hybrid and a volume boost from the new Grand Livina.

- MPVs are generally high margin products and we estimate the Grand Livina to generate an EBITDA margin of between15% to16% vs. 10% for the overall group vehicle sales. Inclusive of the Serena Hybrid, we estimate MPVs to account for 23% of Nissan TIV in FY14F vs. 15% in FY13 (based on current projections). We understand that localisation rate for the new Grand Livina is slightly higher than the previous model, at 30% versus c. 27%-28% previously.

- We are positive on this development, premised on:- (1) Expected volume catalyst as sales of the previous generation Livina has dwindled to c. 200/month in 3Q13 as it has been in the market for 6 years. Average Livina sales in 1H13 were 640 units/month as TCM was clearing inventories of the old model. However, this was partly offset by sales of the Almera and the new Serena Hybrid launched in July 2013; and (2) A lift to group margins given a larger proportion of a high margin product. Post-launch, we estimate the Grand Livina to account for 16% of FY14F Nissan TIV from 11%-12% in FY13F.

- Overall group bookings are still intact. TCM is still getting c. 1,500 bookings a week (6,000/month) currently. Backlog orders stand at slightly over 6,000 currently vs. over 7000 as at end-July with deliveries being gradually met (vs. an average YTD sales of 4,480/month). As there was a oneweek plant shutdown in August due to the Raya holidays, TCM is running on a slightly longer working week (vs. The typical 5 days/week) to meet backlog orders.

Source: AmeSecurities