TCM reported 1QFY20 core LATMI of -RM14.1m (vs. HLIB’s FY20 forecast LATMI -RM118.7m and consensus PATMI RM43.8m), a deterioration QoQ and YoY due to drop in group sales volume affected by Covid-19. Despite the losses, we deem the result above our expectation, following the improved 2HFY20 outlook on Malaysia’s introduction of SST exemption measures (from 15 Jun to 31 Dec 2020). We upgrade our recommendation on TCM to HOLD (from Sell) with higher TP of RM1.05 (from RM0.88) based on unchanged 10x PE to FY21 adjusted higher earnings.

Above expectation. TCM reported core LATMI of -RM14.1m for 1QFY20, as compared to HLIB FY20 forecast of -RM118.7m LATMI and consensus PATMI of RM43.8m. We deem the result above our expectation as we expect stronger 2H20 leveraging on the introduction of SST exemption and launching of new Almera, but below consensus.

Dividend: None.

QoQ/YoY: Results deteriorated to core LATMI -RM14.1m (vs. LATMI -RM12.0m in 4QFY19 and PATMI RM22.1m in 1QFY19) mainly due to lower group sales volume during the quarter, affected by Covid-19, implementation of country lockdown as well as deteriorated overall consumer sentiments.

Outlook. We expect worsening core losses in upcoming 2QFY20 affected by prolonged country lockdown measures during the quarter. Nevertheless, the recent introduction of SST exemption (from 15 Jun to 31 Dec 2020) and PENJANA measures in Malaysia are expected to boost demand for new cars in 2HFY20 given the attractive new pricing drop of 2-7%, cushioning the impact from a weakened economy and consumer sentiment. The upcoming launching of all new Almera (4th generation) in 2HFY20 Is Expected to Drive Up Volume and Margin for the Group.

Forecast. Adjusted earnings for FY20 to LATMI -RM91.9m (from -RM118.7m) and FY21 to PATMI RM67.2m (from RM11.5m). Introduce FY21 PATMI at RM73.6m.

Upgrade to HOLD, TP: RM1.05. Following the forecasts revision on the improved outlook in 2H20, we upgrade TCM to HOLD (from Sell) with higher TP of RM1.05 (from RM0.88) based on unchanged 10x PE to FY21 earnings. Nevertheless, we still expect a stiff competitive market environment, as several new launches by major OEMs are targeted in 2HFY20 and FY2021.

Source: Hong Leong Investment Bank Research - 29 Jun 2020