Journey to Wealth
Tan Chong Motors - Disappointing 1H12
Period 2Q12/1H12
Actual vs. Expectations
The 1H12 net profit came in largely below expectations and made up just 25% and 30% of ours and the consensus' full year estimates of RM297m and RM245m respectively.
Dividends A gross interim dividend of 6.0 sen was announced as expected.
Key Results Highlights
QoQ, its revenue was flat while EBITDA improved by 14.5%. The improvement in EBITDA was mainly due to the recovery in the shortage of parts supply and the increase in production units to cope with backlog orders.
YoY, its net profit slid by 44% as the EBITDA margin dipped by 3.2ppt from 11.3% to 8.1% due to stock constraints for its high selling models i.e. Navarra, Grand Livina and Livina XGear. The margin compression was also eroded due to high selling cost and tighter credit requirements imposed by Bank Negara Malaysia.
Outlook We reckon that it will be a challenging period for Tan Chong in 2H12 due to its late recovery from the Japanese earthquake last year and the impact of tighter credit requirements imposed by Bank Negara Malaysia. TCM is expected to launch its B-segment sedan in September, which could support its sales in 2H12.
Change to Forecasts
We have slashed our FY12-13E net profits by 38% and 9% to RM184m and RM293m respectively as we factored in a higher operating cost for FY12 coupled with a slower sales expectation.
Rating Maintain MARKET PERFORM
We are maintaining our Market Perform recommendation as we expect a slow recovery for its auto parts sales and in the delivery of itshigh selling models. We opine that the underperforming 2Q12 results will negatively impact its share price.
Valuation We have lowered our Target Price from RM4.42 to RM4.36 based on 10x PER on its FY13 EPS (previously 10x PER on FY12 EPS) of 43.6 sen as we lowered down our sales assumption for FY12.
Risks Prolonged effect from the credit tightening measures.
Source: Kenanga
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This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
