TCM’s 1QFY19 net profit of RM22.1m came in below HLIB’s FY19 expectation (22.1%) and consensus (19.9%), dragged by lower than expected sales volume. We are concerned on TCM’s FY19 outlook due to lack of attractive new model introductions and recent RM weakening. Nevertheless, recent news-flow reported that TCM will introduce new Nissan Kicks and Almera in FY2020. We maintain our HOLD recommendation on TCM with lower TP of RM1.70 (from RM1.77) based on 10x FY20f PE (from FY12x) due to heightened earnings risk.

Below expectations. TCM reported 1QFY19 net profit of RM22.1m, which achieved only 22.1% of HLIB’s FY19 forecast and 19.9% of consensus, dragged by lower than expected sales volume for Malaysia and Vietnam operations.

Dividend: None.

QoQ: Overall earnings dropped 81.2% on the drop in automotive sales volume for Malaysia and Vietnam operations as well as the higher marketing and distributional costs, as witnessed by the drop in both the reported revenue and EBITDA of the group (see Figure #3).

YoY: Core earnings increased 58.2% on improved sales mix and lower marketing and distributional costs, given both Malaysia and Vietnam operations reported stable revenue with improved EBITDA contribution (see Figure #3).

Outlook. Moving forward, we expect Malaysia automotive market to remain competitive in 2019 while TCM is being disadvantaged by the lack of new attractive model launch for the year. Nevertheless, management has indicated two new attractive models i.e. Nissan Kicks and Nissan Almera to be introduced in year 2020. Meanwhile, TCM’s investment in Vietnam will be affected by the termination of CBU Nissan distribution rights from the group’s 74% owned Nissan Vietnam Limited (NVL). Furthermore, TCM’s margin is expected to be affected by the recent weakening of RM against USD.

Forecast. Following the latest news-flow on 2019 new launches and book-keeping exercise, we have adjusted earnings for FY19 by -16.1% and FY20 by +14.9% and introduced FY21 at RM110.1m (-0.5% YoY).

Maintain HOLD, TP: RM1.70. We maintain HOLD recommendation on TCM with lower TP of RM1.70 (from RM1.77) based on 10x FY20f PE (previously 12x), following the earnings adjustments and lower targeted PE valuation as we foresee continued stiff competition in Malaysia domestic market.

Source: Hong Leong Investment Bank Research - 15 May 2019