Initial sales volume recovery during early part of 1HFY21 saw a setback upon lockdown measures in Malaysia and Vietnam in Jun, due to the surge of Covid19 cases. Bottom line worsened QoQ to LATMI -RM35.5m in 2QFY21 (vs. LATMI -RM12.8m in 1QFY21). Nevertheless, the recent relaxation of lockdown measures in Malaysia and the extended SST exemption measures till end 2021 has provided some hope of recovery towards 4QFY21. However, we are still relatively concern on the competitive market in Malaysia and the surge of Covid-19 cases in Indochina. Maintain our SELL recommendation on TCM with unchanged TP: RM1.00 based on unchanged 10x PE to FY23 earnings.

Malaysia. The group enjoyed good sales recovery from Jan-May 2021, before getting hit again from Phase 1 FMCO effective Jun 2021, resulting in nil volume for the month. Nevertheless, 1HFY21 sales were still an improvement of 32.9% YoY to 6.3k units, driven by new Almera (launched in Nov 2020) and Navara facelift (launched in Apr 2021). Overall vaccination level for the group is nearing 80% (completed 2 doses) and expected to reach 100% by 1st week of Sep 2021. Production level is gradually being ramped up (depending on vaccination rate), while showrooms have almost fully reopened. Management anticipates recovery towards 4QFY21 with the National Recovery Plan (NRP) and extended SST exemption to end 2021. However, we remain cautious on the group’s domestic market outlook, given the anticipated 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. On a brighter side, management indicated for future consolidation of Segambut and Serendah plants in order to improve costs structure and production efficiency.

Vietnam. Sales volume has continued its growth trend to 1,567 units in 2QFY21, a growth of +85.0% QoQ, as the new MG models have been well accepted by the market. However, management guided for sales disruption due to the recent surge of Covid-19 cases in the country with on-going pockets of lockdown measures, as has been witnessed in the month of Jun. The group is currently in discussion with King Long, SAIC and SGM-Wuling to explore a CKD program utilizing the current inactive Danang plant.

Other countries. The LBITDA of -RM4.6m during 2QFY21 was mainly related to Myanmar operations due to the coup. The recent outbreak of Covid-19 cases in Myanmar, Laos and Cambodia are expected to affect overall sales volume in these countries. The situation is further distressed by the on-going political crisis in Myanmar.

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 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 - 27 Aug 2021