TCM reported LATMI -RM45.3m in 3QFY21, which dragged 9MFY21 to LATMI -RM93.6m, in line with HLIB’s expectation. We expect TCM performance to improve in the coming 4QFY21, in tandem with re-opening of Malaysia economy as the country transition to Phase 4 NRP. However, we are concerned with the on-going stiff competition within Malaysia market 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 -RM45.3m for 3QFY21, which further dragged 9MFY21 down to -RM93.6m. 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 (95.0%), but below consensus’ LATMI -RM28.8m. We expect improved 4QFY21 result in tandem with Malaysia transitioning to Phase 4 NRP. EIs of +RM30.1m were recorded in 9MFY21 mainly attributed to forex gain, partially offset by provision for receivables.

Dividend: None.

QoQ: Bottom line worsened to LATMI -RM45.3m in 3QFY21 (vs. LATMI -RM35.5m in 2QFY21), mainly dragged by longer period of strict lockdown measures during the quarter in Malaysia as well as Indochina market.

YoY/YTD: Results declined YoY to LATMI -RM45.3m in 3QFY21 (vs. PATMI RM1.5m in 3QFY20) and YTD to LATMI -RM93.6m (vs. LATMI -RM76.4m in SPLY), mainly due longer lockdown measures in Malaysia and Indochina markets (except for Vietnam post discontinuing Nissan distribution and commencement of MG distributorship since 4QFY20).

Outlook. We expect Malaysia operation to recover in 4QFY21 in tandem with the country transitioning to Phase 4 of the National Recovery Plan (NRP). The announced SST exemption measure extension to 30 Jun 2022 bodes well for TCM to sustain its sales volume into 1HFY22 with better production planning in addressing the current global shortage of microchip supply. TCM will avoid engaging in head on price competition in the market. Similarly, the group expects vaccination program to gain traction within Indochina countries. However, the on-going Myanmar political crisis may continue to drag the group’s earnings.

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 and the political uncertainty in Myanmar.

Source: Hong Leong Investment Bank Research - 24 Nov 2021