TCM reported core LATMI -RM14.2m in 3QFY22 (vs. -RM10.5m in 2QFY22; -RM39.9m in 3QFY21), which further dragged 9MFY22 to -RM31.6m (vs. -RM80.3m in 9MFY21), below HLIB’s expectation and consensus. We expect TCM’s performance to fair better in 4QFY22, but may remain weak in FY23 due to the ended SST exemptions advantage and ongoing stiff market competition in Malaysia, as management seeks to avoid direct price competition with other OEMs and remain dependant on core models and potentially new models in FY23. Nevertheless, we see gradual improvement in Indochina market (especially Vietnam). TCM will remain affected by the appreciated USD, high logistics and material costs. Maintain our SELL recommendation on TCM with a lower TP: RM0.72 (from RM0.75) based on 8x PE to FY24 earnings.

Below expectations. TCM reported core LATMI -RM14.2m for 3QFY22 (vs. -RM10.5m in 2QFY22; -RM39.9m in 3QFY21) and -RM31.6m for 9MFY22 (vs. -RM80.3m in 9MFY21). We deem the result below HLIB’s FY22 expectation of LATMI -RM5.6m and consensus PATMI +RM1.7m. EIs of RM25.2m were recorded in 9MFY22, mainly attributed to RM46.8m forex gain and RM4.0m disposal gain on PPE, partially offset by -RM17.4 provision for litigation damages.

Dividend: Declared a second interim dividend of 1.5 sen/share (ex-date: 8 Dec 2022). Total dividend for YTD was 3.0 sen/share.

QoQ: Automotive sales volume dropped across all markets on lower demand (in Malaysia) and supply shortage (in Vietnam), which resulted to lower group revenue and widened core LATMI to -RM14.2m in 3QFY22 (vs. -RM10.5m in 2QFY22), despite the lower depreciation, finance costs, loss contribution from associates and tax expenses.

YoY/YTD. Bottom line improved to LATMI -RM14.2m in 3QFY22 (vs -RM10.5m SPLY) and -RM31.6m in 9MFY22 (vs.-RM80.3m SPLY), mainly attributed to higher group revenue (improved sales volume especially in Malaysia as the country fully re opened).

Outlook. We expect sales to improve in 4QFY22, but may remain weak in FY23, given the ending of SST exemptions. Management is committed to avoid direct pricing competitions with other OEMs and remains dependent on its core models: Almera, Serena Hybrid and Navara. Nissan is expected to introduce the new X-Trail model and potential a new smaller SUV sibling Kicks. Management has also continued its EV program through its owned GoEV sharing and subscription platform. Within Indochina market, we expect sales improvement (especially Vietnam) in tandem with the anticipated recovery of economic activities and recovery of supply chain. However, the USD appreciation, higher logistic costs and material costs may continue to affect TCM’s margins in coming quarters.

Forecast. Cut earnings for FY22 to LATMI -RM27.5m (from LATMI -RM5.6m), FY23 to PATMI +RM12.2m (+RM12.7m) and FY24 to PATMI +RM59.0m (from +RM60.1m).

Maintain SELL, TP: RM0.72. We maintain SELL on TCM with a lower TP of RM0.72 (from 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 - 23 Nov 2022