TCM reported weak 2QFY20 core LATMI of –RM59.7m for 2QFY20 a –RM73.8m for 1HFY20 (vs. HLIB’s FY20 forecast LATMI –RM91.9m and consensus –RM19.4m), a deterioration QoQ, YoY and YTD due to drop in group sales volume affected by Covid-19. We deem the result within our expectation, as we expect an improvement in 2HFY20 on Malaysia’s introduction of SST exemption measures (from 15 Jun to 31 Dec 2020) and upcoming launch of new Almera model. We maintain our HOLD recommendation on TCM with unchanged TP of RM1.05 based on unchanged 10x PE to FY21 earnings.

Within expectation. TCM reported core LATMI of –RM59.7m for 2QFY20 and –RM73.8m for 1HFY20, as compared to HLIB’s FY20 forecast of –RM91.9m LATMI and consensus –RM19.4m. We deem the result within our expectation (but below consensus) as we expect an improved 2HFY20, leveraging on the implemented SST exemption (since 15 Jun 2020) and launching of the new Almera. We have excluded the impairments of -RM27.9m for receivables and gain of RM12.5m for forex and derivatives in 1HFY20.

Dividend: None.

QoQ/YoY/YTD: Results deteriorated to core LATMI of –RM59.7m in 2QFY20 (vs. LATMI –RM14.1m in 1QFY20 and PATMI RM18.8m in 2QFY19) and –RM73.8m in 1HFY20 (vs. PATMI RM40.8m in 1HFY19), mainly due to lower group sales volume during the period, affected by Covid-19, implementation of country lockdown as well as deteriorated overall consumer sentiments.

Outlook. We believe the worst is over in 2QFY20 affected by prolonged country lockdown measures during the quarter. The 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. However, the ending of exclusive distributorship for Nissan cars in Vietnam by 4QFY20 will post risk to the group’s earnings.

Forecast. Unchanged.

Maintain HOLD, TP: RM1.05. We maintain HOLD on TCM with unchanged TP of RM1.05 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 - 26 Aug 2020