TCM reported LATMI -RM12.8m in 1QFY21, below HLIB’s FY21 expectation (PATMI RM78.3m), mainly dragged by lower than expected sales volume and margins. The group will continue to leverage onto the SST exemption measures (ending 30 Jun 2021) with its attractive all new Almera model (launched in Nov 2020) and Navara facelift (launched in Apr 2021). However, we are concerned with the group’s Vietnam and Myanmar operations. Maintain our HOLD recommendation on TCM with lower TP RM1.12 (from RM1.20) based on unchanged 10x PE to FY22 earnings.

Below expectation. TCM reported core LATMI of -RM12.8m for 1QFY21, as compared to HLIB’s FY20 forecast of PATMI RM78.3m (below) and consensus’ RM13.8m (inline). Its Malaysia car sales failed to perform in 1QFY21 despite the introduction of all new Almera and SST exemption measures. EIs of +RM20.6m for the quarter included mainly RM18.3m forex gain and RM2m reversal of provision.

Dividend: Declared 1.5sen first interim dividend (ex-date: 9 Jun 2021) for FY21.

QoQ: Results reverted back to LATMI of -RM12.8m in 1QFY21 (vs. PATMI RM2.5m in 4QFY20), mainly dragged by lower group sales volume. Malaysia sales declined by 42.6% QoQ due to lack of inventory and implementation of MCO during the quarter.

YoY: Results improved YoY to LATMI -RM12.8m (vs. LATMI –RM24.6m in 1QFY20), mainly due to improved sales mix from newly launched Almera model (in Malaysia) and improved cost cutting measures with the on-going pandemic as well as lower losses from Vietnam operations.

Outlook. We expect the group to remain cautious in FY21, leveraging on to the new Almera (launched in Nov 2020) and Navara facelift (launched in Apr 2021) while benefiting continued SST exemption (until 30 Jun 2021). TCM will avoid engaging in head on price competition in the market. The group has been making progress with the new distributorship of MG marques in Vietnam, in place of the ending of exclusive distributorship for Nissan cars in Vietnam since 4QFY20. However, the recent surge in Covid-19 cases in Vietnam and Myanmar political crisis will pose risk to the group’s earnings.

Forecast. Cut earnings for FY21 and FY22 by 76.9% and 16.1%. Introduce FY23 earnings at RM83.6m.

Maintain HOLD, TP: RM1.12. We maintain HOLD on TCM with lower TP of RM1.12 (from RM1.20) based on unchanged 10x PE tagged to FY22 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 - 25 May 2021