TCM reported core LATMI -RM10.5m in 2QFY22 (vs. -RM6.9m in 1QFY22; -RM28.9m in 2QFY21), which further dragged 1HFY22 to -RM17.4m (vs. -RM40.4m in 1HFY21), below HLIB’s expectation and consensus. We expect TCM’s performance to continue being dragged by ongoing stiff market competition in Malaysia, partially offset by the gradual improvements in Indochina market (especially Vietnam). Headwinds in 2HFY22 include continuous USD appreciation, higher logistics and material costs. Maintain our SELL recommendation on TCM with an unchanged TP: RM0.75 based on 8x PE to FY24 earnings.

Below expectations. TCM reported core LATMI -RM10.5m for 2QFY22 (vs. -RM6.9m in 1QFY22; -RM28.9m in 2QFY21) and -RM17.4m for 1HFY22 (vs. -RM40.4m in 1HFY21). We deem the result below HLIB’s FY22 expectation of PATMI RM1.3m and consensus RM12.7m. EIs of RM4.1m were recorded in 1HFY22, mainly attributed to RM23.0m forex gain, partially offset by -RM17.4 provision for litigation damages.

Dividend: None.

QoQ: Despite the higher group revenue (on higher car sales volume) and EBIT, core LATMI widened to -RM10.5m in 2QFY22 (vs. -RM6.9m in 4QFY21), dragged by higher finance costs, loss contribution from associates and higher tax expenses.

YoY/YTD. Bottom line improved to LATMI -RM10.5m in 2QFY22 (vs -RM28.9m SPLY) and -RM17.4min 1HFY22 (vs.-RM40.4m SPLY), mainly attributed to higher group revenue (improved sales volume) and lower net finance costs.

Outlook. As the SST exemptions have ended effective 30 Jun 2022, we expect continued stiff market competition in Malaysia. Nevertheless, management indicated healthy order backlogs and new bookings for its new Serena S-Hybrid (launched in July 2022) was encouraging. Within Indochina market, we expect sales improvement (especially Vietnam) in tandem with the anticipated recovery of economic activities. Continuous USD appreciation, higher logistic costs and material costs will also continue to affect TCM’s margins in 2HFY22.

Forecast. Cut earnings for FY22 to LATMI -RM5.6m (from PATMI +RM1.3m), FY23 to PATMI +RM12.7m (+RM16.4m) and FY24 to PATMI +RM60.1m (from +RM61.3m).

Maintain SELL, TP: RM0.75. We maintain SELL on TCM with an unchanged TP of RM0.75 based on 8x PE tagged to FY24 earnings. We are still relatively concerned on continued weak sales volume due to stiff competition.

Source: Hong Leong Investment Bank Research - 30 Aug 2022