TCM reported LATMI -RM35.5m in 2QFY21, which dragged 1HFY21 to LATMI -RM48.3m, mainly due to lower than expected sales volume and margins. The group is expected to leverage onto the SST exemption measures (ending 30 Dec 2021) to boost sales volume towards 4QFY21. However, we are concerned with Malaysia sales volume post SST exemptions, as well as the on-going deteriorating Covid-19 situation in Indochina and political uncertainty in Myanmar. Maintain our SELL recommendation on TCM with unchanged TP: RM1.00 based on unchanged 10x PE to FY23 earnings.

Within expectation. TCM reported core LATMI -RM35.5m for 2QFY21, which further dragged 1HFY21 down to -RM48.3m. The dismal result was due to deteriorated sales volume and margins, affected by the various implementations of lockdown measures within the group’s geographical operation. We deem the result within HLIB’s FY21 expectation of LATMI -RM98.5m (49.1%), but below consensus’ PATMI RM9.6m. EIs of +RM30.1m were recorded in 1HFY21 mainly attributed to forex gain.

Dividend: None.

QoQ: Despite improved revenue, bottom line worsened to LATMI -RM35.5m in 2QFY21 (vs. LATMI -RM12.8m in 1QFY21), mainly dragged by deteriorated model sales mix, higher operating costs and halting of operations in June in Malaysia, as well deteriorated Indochina market (with the exception of Vietnam market).

YoY/YTD: Results improved YoY to LATMI -RM35.5m (vs. LATMI -RM53.3m in 2QFY20) and YTD to LATMI -RM48.3m (vs. LATMI -RM77.8m in 1HFY20), mainly due to improved sales mix from new Almera and Navara facelift as well as ongoing cost-cutting measures in 1HFY21.

Outlook. Bottomline is expected to remain depressed in 3QFY21, prior to a recovery in 4QFY21, as the group leverages on the extended SST exemptions measure until end FY21. However, uncertainties remain entering into FY22, when SST exemption expires. TCM will avoid engaging in head on price competition in the market. Furthermore, the recent surge of Covid-19 cases in Indochina countries and Myanmar political crisis may provide drag to the group’s earnings. On a more positive note, the group has been making progress with the new distributorship of MG marques in Vietnam as revenue from the country continued to improve with turnaround of its EBITDA level.

Forecast. Unchanged.

Maintain SELL, TP: RM1.00. We maintain SELL on TCM with unchanged TP of RM1.00 based on unchanged 10x PE tagged to FY23 earnings. We are still relatively concerned on continued stiff competitive domestic market environment, the surging Covid-19 cases in Indochina region and the political uncertainty in Myanmar.

Source: Hong Leong Investment Bank Research - 25 Aug 2021