3QFY21 was severely affected by lockdown measures within the group’s geographical operation. Management guided new orders have been gaining traction and back to pre-pandemic levels for Malaysia and Vietnam, as both countries have gradually relaxed lockdown measures. Malaysia operation is expected to leverage onto the extended SST exemption measures till mid-2022 while the supply chain and production line has recovered. However, we are still relatively concern on the competitive market in Malaysia and the ongoing fluid situation in Myanmar. Maintain our SELL recommendation on TCM with unchanged TP: RM1.00 based on unchanged 10x PE to FY23 earnings.

Malaysia. Management is seeing a good recovery to new car orders as the country transition into Phase 4 National Recovery Plan (NRP). Supply chain and production line have also normalised with microchips supply been secured enough to last until mid- 2022, in tandem with the ending of SST exemption. The group’s new focus on car subscription business model, which started in 2019, has continued to gain traction with current fleet size reaching 2,800 units. Management targets to breakeven in 2022, when fleet size grows to 4,000 units. However, we remain cautious on the group’s domestic market outlook, given the anticipated stiff competition for the mass market segment with attractive models Honda City, Honda City Hatchback, Toyota Vios, Toyota Yaris and Proton X50 competing in the same price segment of RM80-100k. The previous indicated consolidation exercise of Segambut and Serendah plants is still being evaluated.

Vietnam. Similar to Malaysia, new orders has been gaining traction again after being affected by series of lock-down measures in Ho Chi Minh City and certain provinces. Since March 2021, TCM has been appointed as the exclusive importer and distributor for SGMW’s N111P Pickup, N300P Pickup and N300L Cargo Van in Vietnam and the provision of after-sales services. However, the MOU with King Long has been terminated and MOU with GAC has expired. At the meantime, management is exploring opportunities with 3rd parties for the potential utilization of its Danang plant, which we can only expect a conclusion towards the end-2022/early-2023.

Other countries. Continued to record losses during the quarter due to lockdown measures. Myanmar recorded sales uptick in 3QFY21 mainly due to pre-price hike sales event in Sept, as the group will be introducing price hike effective Oct in tandem with general industry practice on the depreciated Myanmar Kyat currency. The situation in Myanmar remains fluid at this juncture.

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 as well as political uncertainty in Myanmar.

Source: Hong Leong Investment Bank Research - 26 Nov 2021