Stock Name: TCHONG
Company Name: TAN CHONG MOTOR HOLDINGS BHD
Research House: OSK



OSK Research has maintained a "buy" call on Tan Chong Motor Holdings over the company's structural changes that will see an increase in volume and earnings over the next three years.

Recently, the company had announced its intentions to set up a manufacturing plant in Kota Kinabalu Industrial Park, Sabah, with a RM285 million investment over five years on a 20-hectare site.

"Tan Chong is expected to kickstart production sometime in the second quarter of 2012 with an initial output of 3,000 units at its Navara assembly line, which would cost US$15 million at most in the first phase," OSK Research said in a statement today.

It has maintained its target price of RM7.29 on the company as well.

"With production to commence and noting that the upcoming Navara's content would be localised, which translates into higher margins, we have increased our units sold assumption by an additional 1,000 for 2012.

"This effectively nudges up our earnings estimates for 2012 by 4.7 per cent, for a year-on-year growth of 30 per cent for the year, which will also be boosted by its Indochina foray and localised B-segment model," it said.

The research house also noted that Sabah currently lacks a conducive supply chain and infrastrucutre to support the company's venture.

"However, we may potentially see Tan Chong luring other global original equipment manufacturers (OEMs) in establishing new manufacturing bases in Sabah, noting the high possibility that it could also bring APM Automotive Holding Berhad into Sabah going forward.

"We do not rule out the possibility of Tan Chong becoming an assembler of other margues given the sizeable land that it is acquiring," it said. -- Bernama