Malaysia sales volume in 1QFY21 was relatively disappointing as market share has slid to 2.2% during the quarter (vs. 2.7% in 4QFY20 and 2.8% in 1QFY2 1) due to stiff market competition. Nevertheless, recent launch Navara facelift model has pushed up sales volume in April month. Vietnam operation has improved with lower losses as newly introduced MG models have been well received in the market while Myanmar’s current political uncertainty has dragged sales volume. Maintain our HOLD recommendation on TCM with unchanged TP RM1.12 based on unchanged 10x PE to FY22 earnings.

Malaysia. Total 1QFY21 group sales volume of 31.3k units in Malaysia was a significant drop -42.6% QoQ due to accelerated sales delivery by year end 2020 and re-implementation of MCO2.0 during the start of 2021. The growth of +5.3% YoY, was relatively disappointing, despite the on-going SST exemption measures. The group’s market share has further slip to 2.2% in 1QFY21 (vs 2.7% in 4QFY20 and 2.8% in 1QFY20). The new Almera (launched in Nov 2020) has failed to deliver sales expectations. We anticipate continued stiff competition for the mass market segment given similar launch timing of Honda City, Toyota Vios, Toyota Yaris as well as Proton X50 at the same price segment of RM80-100k. Nevertheless, the recent launch of Navara facelift model in April has contributed to higher group sales volume during the month. Management is hopeful that the government will allow for a further extension of SST exemption to 31 Dec 2021, in order to sustain the group’s sales volume.

Vietnam. Sales volume has recovered strongly to 847 units in 1QFY21 (+92.5% QoQ; +33.0% YoY) as the new MG models have been well accepted in the market. The group managed to lower LBITDA in Vietnam operation, due to higher sales volume and on-going cost rationalization effort (including minimal running cost for now idle Danang assembling plant). The group is currently in discussion with King Long, SAIC and SGM-Wuling to explore a CKD program utilizing the facility. 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.

Other countries. The recent political crisis in Myanmar has affected the operation of TCM in the country, as sales volume dropped to 32 units only (-63.6% QoQ; -94.0% YoY). Management shared that the group’s overall investment in the country was USD25m (c. RM100m) and will continue to monitor the situation. Sales also dropped in Laos and Cambodia following surge in Covid-19 cases and implementation of lockdown in the countries. Nevertheless, the group still managed to record EBITDA of RM1.7m, indicating it could still potentially breakeven at bottom line for the segment.

Forecast. Unchanged.

Maintain HOLD, TP: RM1.12. We maintain HOLD on TCM with unchanged TP of RM1.12 based on unchanged 10x PE tagged to FY22 earnings. We are still relatively concerned on the continued stiff competitive domestic market environment, the surge of Covid-19 cases in the region as well as political uncertainty in Myanmar.

Source: Hong Leong Investment Bank Research - 31 May 2021