Period     1QFY13/3MFY13

Actual vs. Expectations   The 1Q13 net profit of RM84m came in within ours and market expectations, making up 30% and 27% of ours and the consensus estimates.

Dividends    No dividends were proposed for the quarter.

Key Results Highlights    YoY, the net profit grew more than double backed by a higher sales volume, which was mainly contributed by the overwhelming response for the Nissan Almera, and the strong EBITDA margin enjoyed by the automotive segment of 10% (+1.2 ppt). In 1Q13, Tan Chong sold 8,979 units of the Almera (YTD: >15k units), attributing 62% of total vehicle sales for the quarter. However, the EBITDA contribution from the financial services segment fell 12% to RM5m due to the disposal of its hire purchase (HP) receivables under the Asset Backed Securitisation (ABS) programme in 4Q12, which further reduced the HP receivables balances in 1Q13.

QoQ,  the net profit was up 67% due to an improved market share underpinned by the strong vehicle sales. Nissan has managed to capture a 9.3% share in the non-national passenger car segment in 1Q13 itself. In contrast, the performance of the financial services segment declined by 16% at the EBITDA level due to the disposal of the HP receivables under the ABS programme in 4Q12.  

Outlook    The group is targeting to capture a 10% market share for 2013 (2012: 5.8%) through launches of new Nissan models and attractive packages.

Sales is expected to slow down in 2Q13 as consumers deferred their purchases of big-ticket items prior to the 13th General Election as they were anticipating possible policy changes especially pertaining to the lowering of car prices. 

Change to Forecasts     Our forecasts are left unchanged. 

Rating  Maintain OUTPERFORM

Valuation     In line with the currently bullish market sentiment, we have increased our target price to RM7.50 (from RM5.60) after we assigned a higher PER multiple of 14.8x (+1SD) (from 13x previously) to the company’s FY14 EPS.

Risks    Weak consumer sentiments.  

Unfavourable forex trends (weakening of the Ringgit against the USD and the JPY), which may adversely compress margin.

Source: Kenanga