Results

Reported RM80.7m core earnings in 3Q13 and RM229.5m in 9M13, slightly below HLIB’s RM336.2m (68.2%) and consensus RM341.9m (60.6%).

Deviations

Lower than expected car sales.

Dividends

None.

Highlights

3Q13 revenue improved significantly to RM1.3bn (+35.1% yoy; +11.1% qoq) on the back of strong Nissan (combined with Renault) car sales volume (+62.0% yoy; +16.5% qoq), mainly due to high Almera demand and newly launched Serena Hybrid (July 2013). The newly launched Grand Livina (Sept 2013) is expected to boost the sales of Nissan, amidst potential lower Almera sales due to competition from the newly launched Toyota Vios in Oct 2013.

Ytd (Jan-Oct), Nissan sales has only reached 43,750, which is only 75.4% of management target and 77.8% of HLIB’s assumption. We have lower our assumption for FY13 to 54.4k units, as we expect strong competition from the new Toyota Vios as well as Mitsubishi Attrage.

As for-warned, TCM’s 74% owned Vietnam operation has recognized backdated import duties of RM56m in 3Q13 for the importation of CKD parts and kits during 2010-2012. The provision was not tax-deductible. TCM has made appeal to Vietnam authority for the decision and optimistic that the total amount will be reduced to 20% or RM11.2m.

We are more concerned on the potential margin deterioration in FY14, as we expect US$ to remain high in FY14. Management guided earnings to drop by 16-17% if exchange rate stayed at MYR3.30/US$

Risks

• Prolonged tightening of banks’ HP rules.
• Slowdown in the Malaysian economy affecting car sales.
• Slow market development in Indochina, particularly Vietnam.
• Global automotive supply chain disruption.

Forecasts

We cut FY13 earnings forecast by 7.0%, and FY14-15 by 4.3% and 5.7% respectively, to account for lower car sales.

Rating

Hold

Positives –

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

Negatives –

• Tightening of bank’s lending rules.
• Relatively underdeveloped Indochina’s automotive market.
• Weakening of MYR.
• Illiquid counter.

Valuation

Maintained Hold recommendation with lower Target Price of RM6.12 (from RM6.40), after adjusting for lower car sales assumption.

Source: Hong Leong Investment Bank Research - 21 Nov 2013