TCM performance deteriorated to LATMI -RM14.2m in 4QFY20 and -RM90.6m in FY20, below HLIB expectation (-RM65.6m), mainly dragged by lower than expected sales volume and deteriorated model sales mix. We expect sales volume in to improve in FY21 with the continuation of SST exemption measures (to 30 Jun 2021) and leverage onto new Almera model (launched Nov 2020) and upcoming Navara facelift. However, we are concerned with the group’s Vietnam and Myanmar operations. Maintain our HOLD recommendation on TCM with unchanged TP RM1.20 based on unchanged 10x PE to FY21 earnings.

Below expectation. TCM reported core LATMI of -RM14.2m for 4QFY20, dragging core LATMI to -RM90.6m for FY20, as compared to HLIB’s FY20 forecast of LATMI -RM65.6m (below) and consensus’ -RM84.6m (inline). Its Malaysia car sales failed to perform in 4QFY20 despite the introduction of all new Almera and SST exemption measures. EIs for FY20 includes impairments of -RM8.9m for receivables, impairments -RM12.8m for inventories (mainly in 4QFY20), -RM17.8m forex loss, -RM7.8m PPE write-off and impairments (mainly in 4QFY20) and RM5.0m PPE disposal gain, as well as half of the RM109m provision for settlement with Royal Malaysia Custom Department.

Dividend: None.

QoQ: Results reverted back to LATMI of -RM14.2m in 4QFY20 (vs. PATMI RM1.5m in 3QFY20), mainly dragged by deteriorated sales mix in Malaysia (despite slight increase in overall sales volume).

YoY & YTD: Results deteriorated YoY to LATMI -RM14.2m (vs. LATMI -6.8m in 4QFY19) and YTD to LATMI -RM90.6m (vs. PATMI RM34.8m in FY19), mainly due to lower group sales volume during FY20, affected by Covid-19, implementation of country lockdown as well as deteriorated overall consumer sentiment.

Outlook. We expect the group to remain cautious in FY21, leveraging on to the new Almera (launched in Nov 2020) and upcoming Navara facelift while benefiting continued SST exemption (until 30 Jun 2021). TCM will avoid engaging in head on price competitions in the market. However, the ending of exclusive distributorship for Nissan cars in Vietnam by 4QFY20 as well as the recent Myanmar political crisis in 1QFY21 will post risk to the group’s earnings.

Forecast. Unchanged.

Maintain HOLD, TP: RM1.20. We maintain HOLD on TCM with unchanged TP of RM1.20 based on unchanged 10x PE tagged to FY21 earnings. We are still relatively concerned on continued stiff competitive domestic market environment, the discontinuation of Nissan distributorship in Vietnam and the political uncertainty in Myanmar.

Source: Hong Leong Investment Bank Research - 1 Apr 2021