Journey to Wealth
Tan Chong Motors - 9M12 slightly below expectations
Period 3Q12/9M12
Actual vs. Expectations The 9M12 net profit came in slightly below expectations and made up only 59% and 54% of ours and the consensus' full year estimates of RM183.9m and RM197.8m respectively.
Dividends No dividend was declared for this quarter.
Key Results Highlights QoQ, the 9M12 revenue slid by a marginal 5% from RM985.4m to RM937.7m due to the waitand-see stance by consumers on the anticipation then of car price reductions in the recent Budget 2013 announcement. The net profit dipped by 18% from RM42.3m to RM34.5m due to the fulfilment of backlog orders in 2Q12 and a higher financing cost.
YoY, the 9M12 net profit of RM107.6m came down by 42% on the back of a softer revenue of RM2,905.6m (-2%) as the pre-tax margin dipped by 3.5ppt from 8.7% to 5.2% given the higher promotional and marketing activities due to stiffer competition coupled with a higher financing cost, which saw an increase of 59% from RM16.7m to RM26.4m.
Outlook We reckon that Tan Chong should be able to post stronger numbers in 4Q12, which will cushion its sales shortfall in the last three quarters. Its newly launched Almera received an overwhelming response from the market with 7,000 bookings in just 2 weeks post-launching.
Change to Forecasts We have trimmed our FY12 net profit by 10.2% from RM183.8m to RM165.1m as we have lowered our margin assumption for its vehicle assembly division as a result of the higher marketing and distribution cost.
Rating Maintain MARKET PERFORM
We are maintaining our MARKET PERFORM recommendation at this juncture as we expect a more meaningful recovery to be felt only in FY13.
Valuation We are maintaining our Target Price of RM4.36 based on a 10x PER on its FY13 EPS.
Risks Prolonged effect from the credit tightening measures.
Source: Kenanga
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