TCM will continue to leverage on the sales of new Almera and upcoming Navara facelift while taking advantage of the extended SST exemptions measure (to 30 Jun 2021). However, Indochina may remain dragged by Vietnam’s loss making operations (terminated distribution and assembling rights for Nissan models) and Myanmar’s current political uncertainty. Maintain our HOLD recommendation on TCM with unchanged TP RM1.20 based on unchanged 10x PE to FY21 earnings.

Malaysia. Total group sales volume of 15.5k units (-32.4% YoY) in Malaysia was relatively disappointing in FY20, despite the implementation of SST exemptions and ongoing stimulus plans in 2HYF20. The launch of all new Almera (in Nov 2020) has failed to lift up the overall domestic group sales volume. Upcoming new launches include Navara facelift model. We anticipate stiff competition for the mass market segment given similar launch timing of Honda City, Toyota Vios, Toyota Yaris as well as Proton X50. With regards to RM109m tax settlement with Royal Malaysian Customs Department, management was unable to share the total impact in 4QFY20 from the settlement, but guided no further provision is needed going forward. Management was also not able to divulge information with regards to the recent announced 20MW LSS.

Vietnam. Sales in the country has dropped to 440 units in 4Q20 (-67.7% Qo -63.3% YoY) as the group has since ceased the distributorship of Nissan during the quarter. The current sales volume is mainly attributed to the new MG marque. The group is currently in discussion with King Long, SAIC and SGM-Wuling to utilize its Danang assembly plant potentially in 2H21 for localized MG SUV models. Nevertheless, management guided for lower losses in current financial year as they had to provide heavy discounting in FY20 in order to clear its existing Nissan inventory.

Myanmar. The recent political uncertainty in Myanmar has affected the operation of TCM in the country. Management shared that the group’s overall investment in the country was USD25m (c. RM100m) and will continue to monitor the situation. It is still relatively in the early stage to assess the risk for impairments.

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 the continued stiff competitive domestic market environment, the discontinuation of Nissan distributorship in Vietnam and political uncertainty in Myanmar.

Source: Hong Leong Investment Bank Research - 5 Apr 2021