1HFY22 results were a disappointment, on lower than expected margins and higher than expected tax expenses. Nevertheless, the 1HFY22 was still an improvement YoY, on stronger domestic sales volume. Indochina contribution was relatively flattish YTD. Maintain our SELL recommendation on TCM with unchanged TP: RM0.75 based on unchanged 8x PE to FY24 earnings.

1HFY22 result recaps. TCM recorded a disappointing core LATMI -RM17.4m for 1HFY22, mainly due to lower-than-expected margins and higher-than-expected tax expenses. Nevertheless, 1HFY22 was still an improvement YoY, mainly driven by higher sales volume and margins of Malaysia operation, while Indochina operation was still relatively flattish YoY in line with the flattish sales volume. There was a litigation provision of RM17.4m for Cambodia operations in 1HFY22.

Malaysia. Similar to the industry, TCM’s Malaysia sales volume improved +28.7% YoY (see Figure #1) driven by production and delivery ramp up in 1HFY22 (vs pockets of lockdowns SPLY), while its financial services revenue surprisingly dropped -5.2% YoY. Overall EBIT contribution improved YoY on the higher vehicle sales volume. The group has recently launched Serena-S Hybrid facelift in early July and also new Tomei accessories for Almera model in August in order to stay relevant to the market. Currently, inventory is at low level of RM589m (lasting around 3 months) due to supply shortage from principal, while new orders are still relatively encouraging post ending of SST exemption measures. However, we remain cautious on the group’s domestic market outlook, due to the ongoing stiff competition for the various segments in the market.

New business. The group has managed to grow its fleet size to over 3,100 cars for its new subscription business model (started in 2019) as compared to 1,780 units in 2020, under its own Renault Subscription platform and GoCar Subs platform. The platforms have been well accepted as unused vehicle has been at low single digit level. Previously, management had guided to breakeven in 2022, when its fleet size grows to 4,000 units. The new business is also introducing new services GoEV (in order to capture the adoption of EV in Malaysia) and GoCar Garage.

Vietnam. Sales volume was flattish YTD (see Figure #1), with revenue dropping slightly by -2.2% YTD in 1HFY22. Nevertheless, LBITDA was lowered to -RM1.1m in 1HFY22 (vs. -RM3.5m in 1HFY21) on improved sales model mix and continued cost control measures. The MG models have been well received in Vietnam market. The recently launched new model MG5 sedan model (in March 2022) has been well accepted, capturing 5.3% market share of the car segment. Management remains upbeat on Vietnam market as the country fully reopens its economy and border.

Other countries. Overall market in Laos, Cambodia and Myanmar saw sales volume growth YTD (see Figure #1) and revenue growth of +44.6% YTD, following re-opening of the countries’ economies. However overall core EBITDA was lowered YTD mainly dragged by unrealized forex losses. Management is taking a cautious stance in these countries due to the deteriorated consumer sentiment in Laos and Cambodia as well as uncertainty of politics in Myanmar.

Forecast. Unchanged.

Maintain SELL, TP: RM0.75. We maintain SELL on TCM with unchanged TP of RM0.75 based on unchanged 8x PE tagged to FY24 earnings. While we expect an improvement in 2022, we are still relatively concerned on the continued stiff competitive domestic market environment as well as USD appreciation against MYR.

Source: Hong Leong Investment Bank Research - 2 Sept 2022