Highlights

TCM announced that its wholly owned subsidiary ETCM (MM) has been awarded the sole and exclusive rights by Nissan Motor to distribute Nissan marque CBU (complete Built Up) vehicles in Myanmar for an initial period of 5 years and automatic extendable for further period of one year.

TCM also has the rights to appoint its respective dealers to sell Nissan vehicles and/or perform after-sales services on the vehicles.

TCM expects to invest US$2.5m (RM7.7m) as the working capital to support its investment in Myanmar for the initial 3 years operation. The capex will be internally funded by TCM.

TCM is expected to commence operation (start distribution of Nissan) in 3Q13 and targeted annual sales volume of 300 units. The new venture is not expected to contribute significantly to TCM’s earnings in 2013.

Comment

We are positive on TCM’s new foreign foray, as it is part of TCM’s long term strategic move on regional expansion plan, building a strong partnership with Nissan Motor.

Investing into Myanmar has completed TCM’s foreign portfolio of Indochina market (Vietnam, Laos, Cambodia) with Left-Hand-Drive (LHD). TCM has already built its own manufacturing plant in Danang, Vietnam (initial capacity of 5,000 unit pa.), which has secured contract assembling for LHD Nissan cars. We expect gradual capacity increase to serve export market in the future.

With an initial sales target of 300 units pa., it is relatively insignificant to Malaysia expected sales volume of 60k units in FY13. In FY12, Vietnam sales was 1,085 units; Laos: 441 units; and Cambodia: 398 units.

Nevertheless, we reckon the huge potential automotive market in Indochina in the longer term, given their large population base (Vietnam: 90m; Myanmar: 60m; Cambodia: 15m; and Laos: 6m) and strong economy growth prospects as the region open up for foreign investments.

Risks

• Slowdown of Malaysia economy affecting car sales.
• Slow market development in Indochina, particularly Vietnam.
• Global automotive supply chain disruption.

Forecasts

Unchanged.

Rating

BUY

Positives –

• Strategic expansion plan into fast growing Indochina market.
• Increase plant utilization from contract assembly.

Negatives –

• Illiquid counter.
• Relatively underdeveloped Indochina’s automotive market.

Valuation

We reiterate BUY recommendation with unchanged TP at RM7.30 based on FY14 P/E of 12x.

Source: Hong Leong Investment Bank Research - 30 Jul 2013