Results

• Within expectations – Tan Chong’s 4Q17 core loss was RM8.7m, bringing FY17 core loss to RM78.0m, within HLIB expectations (loss of RM83.5m for FY17) but above consensus (loss of RM93.7m for FY17).

Deviations

• None.

Dividends

• The board proposed a final dividend of 1.0 sen/share, bringing the YTD FY17 total dividend to 2.0 sen/share, which was in line with our expectation.

Highlights

• YoY: 4Q17 revenue declined to RM1,076m from RM1,223m in 4Q16 was due decline in Nissan domestic car sales as a result from intense market competition. However, financial services segment recorded higher revenue to RM75.9m (+15.2%) due to higher hire purchase loan provided. Core loss widened to RM8.7m due to the lower revenue of auto segment.
• QoQ: 4Q17 revenue was higher marginally by 0.3% on improved sales mix despite lower sales volume. Correspondingly, core loss improved to RM8.7m from RM15.7m in 3Q17 on better cost structure (from strengthening of ringgit) and associate contribution amounted to RM1.1m.
• YTD: FY17 core LATAMI of RM78.0m was higher compared to RM50.9m loss recorded in FY16, dragged down by lower car sales and lower margins from unfavorable foreign exchange as well as higher operating expenses.
• During the year, inventory level has reduced to RM1.2bn (from RM1.7bn in FY16) as the group increased their promotional activities by giving huge discount to clear inventories. The old inventories are mainly from dated model such as Almera, X-Trail and Navara NP200.
• Outlook: We expect group sales volume to stay subdue in 2018 as a result from on-going strict lending guidelines and a more competitive market. However, strengthening of RM against US$ will improve margin with lower operating cost to be incurred.

Risks

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

Forecasts

• Unchanged pending analyst briefing later today.

Rating

HOLD (↔)

• Recent RM stabilization has improved the outlook of TCM, given its large cost structures denominated in US$. However, the weak sales volume remains a concern due to low operational scale. We believe that TCM current share price has already priced in the weak sales volume.

Valuation

• We maintain our HOLD recommendation with unchanged TP of RM2.11 based on 0.5x P/NAV. We believe the ongoing loss making will continue to drag investor confidence.

Source: Hong Leong Investment Bank Research - 28 Feb 2018