TCM reported a turnaround in 3QFY20 to core PATMI of RM1.5m (driven by higher sales volume QoQ and lower finance cost YoY), while 9MFY20 remained in the red at –RM76.4m (vs. HLIB’s FY20 forecast LATMI -RM91.9m and consensus’ -RM45.5m). We deem the result above our expectation, as we expect continued improvement in 4QFY20 on Malaysia’s introduction of SST exemption measures (from 15 Jun to 31 Dec 2020) and newly launched Almera model in Nov 2020. However, we still maintain our HOLD recommendation on TCM with higher TP RM1.10 (from TP of RM1.05) based on unchanged 10x PE to FY21 earnings, following slight adjustment in earnings.

Above expectation. TCM reported core PATMI of RM1.5m for 3QFY20, reducing core LATMI to -RM76.4m for 9MFY20, as compared to HLIB’s FY20 forecast of -RM91.9m LATMI and consensus’ -RM45.4m. We deem the result above our expectation (but below consensus) as we expect continued profits in 4QFY20, leveraging on the implemented SST exemption (since 15 Jun 2020) and newly launched Almera. We have excluded impairments of -RM19.8m for receivables and inventories for 9MFY20 in deriving core PATMI.

Dividend: Declared An Interim Dividend of 1.5sen/share (ex-date 11 Dec 2020).

QoQ: Results returned back to black with core PATMI of RM1.5m in 3QFY20 (vs. LATMI -RM53.3m in 2QFY20), mainly driven by improvement in Malaysia sales volume during the period following implementation of SST exemptions since mid-Jun 2020.

YoY: Results returned back to black with core PATMI of RM1.5m in 3QFY20 (vs. LATMI –RM1.1m in 3QFY19), mainly driven by lower net finance costs.

YTD: However, YTD results were still in the red at LATMI of -RM76.4m for 9MFY20 (vs. PATMI RM41.5m for 9MFY19), mainly due to lower group sales volume during 1HFY20, affected by Covid-19, implementation of country lockdown as well as deteriorated overall consumer sentiment.

Outlook. We expect continuous improvement in 4QFY20 following the new contribution from Almera (launched in Nov 2020) and continued SST exemption (until 31 Dec 2020) and PENJANA stimulus measures in Malaysia. However, the ending of exclusive distributorship for Nissan cars in Vietnam by 4QFY20 will post risk to the group’s earnings.

Forecast. We cut losses for FY20 to -RM63.1m (from -RM91.9m) and increased earnings for FY21 by 4.8% and FY22 by 1.4%, accounting for higher margins and sales volume for the period.

Maintain HOLD, TP: RM1.10. We maintain HOLD on TCM with higher TP of RM1.10 (from RM1.05) based on unchanged 10x PE to FY21 earnings. We are still relatively concerned on continued stiff competitive domestic market environment and the discontinuation of Nissan distributorship in Vietnam.

Source: Hong Leong Investment Bank Research - 25 Nov 2020