Tan Chong Motor Holdings (TCM) is expected to see an upward consensus' earnings revision, thanks to the better-than-expected sales of the Nissan Almera. Management guided that over 8k Almera bookings are still outstanding and will be delivered over the next two to three months. As such, we raise our vehicle sales projections by 8%-9% for FY13 and FY14. With the earnings upgrade of 7%-8% due to the higher volume, we also raise our FV to RM5.74, premised at 11x PE.
Almera selling like hot cakes. TCM sold roughly 6.5k units of the Nissan Almera in FY12, surpassing our 3k forecast. Management has in the first week of January guided that over 8k Almera bookings are still outstanding, and these are expected to be delivered over the next two to three months. With near-term orders set to be encouraging at around 145 new bookings a day, we estimate that the numbers could well exceed our initial forecast of 12k units for FY13. As such, we now raise our Almera vehicle sales assumption to 16k units for FY13 and 12k for FY14, numbers which we still see as fairly conservative. Note that TCM's Almera production line has a capacity of 22k units per annum and as such, any production bottleneck and disruptions are highly unlikely.
Danang kicking off soon. Management pointed out that its plant in Danang, Vietnam will be able to commence production sometime in late-2Q, at the very latest, after it obtains all relevant approvals by the authorities and Ministry of Transport. Management intends to assemble the Almera in this plant and we think TCM could replicate the model's success in Malaysia in Vietnam as well.
Boosting sales of its other lineups. TCM has also been promoting its other vehicles aggressively to spur more sales. One notable promotion is offering loans that come with 0% interest for the first 12 months for potential buyers of the Teana, Sylphy, Navara and X Gear. We remain confident that TCM should be able to achieve our FY13 vehicle sales projection of 48k units, a 39% y-o-y hike from the 35k units sold in FY12.
Upgrade earnings, maintain BUY. With the Almera having the highest localization rate amongst its line up coupled with the economies of scale achieved from the higher production output, we believe that TCM's margins could be nudged higher. Following the higher vehicle sales assumption, lifted by the Almera, our earnings for FY13 and FY14 is revised by 8% and 7% respectively. This raises our FV to RM5.74 premised at 11x PE.