TCM reported core PATMI +RM1.7m in 4QFY22 (vs. -RM14.2m in 3QFY22; +RM32.4m in 4QFY21), improving FY22 LATMI to -RM29.9m (vs. -RM47.9m in FY21), within HLIB’s expectation, but below consensus. TCM’s performance may remain weak in FY23 due to 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 expect upside from Indonesia market (especially Vietnam), on the anticipated economy recovery. Maintain our SELL recommendation on TCM with an unchanged TP: RM0.72 based on 8x PE to FY24 earnings.

Below expectations. TCM reported core PATMI RM1.7m for 4QFY22 (vs. -RM14.2m in 3QFY22; +RM32.4m in 4QFY21) and -RM29.9m for FY22 (vs. -RM47.9m in FY21). We deem the result within HLIB’s FY22 expectation of LATMI -RM27.5m, but below consensus -RM8.9m. EIs of -RM21.2m were recorded in FY22, mainly attributed to -RM17.4 provision for litigation damages and -RM6.9m on deferred tax expenses.

Dividend: None.

QoQ: Turnaround to +RM1.7m PATMI in 4QFY22 (from LATMI -RM14.2m in 3QFY22), mainly driven by EBITDA turnaround of Vietnam operations (on higher sales volume) as well as higher margin from Malaysia operation (following sales mix improvement from newly launched Serena S-hybrid), partially offset by higher depreciation charges.

YoY. Core earnings declined -94.9% on lower Malaysia sales volume (see Figure #5) and higher operational costs following deteriorated forex, higher input costs and labour costs.

YTD. Bottom line improved to LATMI -RM29.9m in FY22 (vs.-RM47.9m SPLY), mainly attributed to higher group revenue (improved sales volume especially in Malaysia as the country fully re-opened).

Outlook. Management is committed to avoid direct pricing competition with other OEMs and remains dependent on its core models: Almera, Serena S-hybrid and Navara. Management has revealed new launch of Leaf EV in 1HFY23. We expect Nissan to introduce the new X-Trail model and potential a new smaller SUV sibling Kicks. Within Indochina market, we expect sales improvement (especially Vietnam) in tandem with the anticipated recovery of economic activities and recovery of supply chain.

Forecast. Unchanged.

Maintain SELL, TP: RM0.72. We maintain SELL on TCM with an unchanged TP: RM0.72 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 - 1 Mar 2023