News     In a Bursa announcement, Tan Chong Motors Holdings (“Tan Chong”) announced that its newly incorporated wholly-owned subsidiary, ETCM (MM)Pte Ltd (“ETCM-MM”), has entered into a distribution agreement with Nissan Motors Co. Ltd. (“NML”) with the sole and exclusive right to distribute NISSAN brand completely built-up (“CBU”) vehicles in Myanmar.

The sole and exclusive right to purchase the vehicles from NML and distribute in Myanmar includes the rights to appoint any person as its dealers to sell and/or perform after-sales services on the CBU vehicles.

The initial term of the agreement shall be valid until 29 July 2018 and automatically be extended for another one year unless otherwise terminated.

The distribution of the CBU vehicles in Myanmar by Tan Chong is expected to commence in 3Q2013 with projected sales volume of about 300 units per annum.

Comments    We are sanguine on Tan Chong’s foray into the Myanmar market as this widens its geographic foot print in the automotive business in ASEAN region. 

With a pipeline of attractive new models as well as the momentum build-up by its current models, we believe Tan Chong is well poised to capture the booming demand of automotive in Myanmar.  

Outlook    We believe Tan Chong outlooks remain positive, underpinned by: (i) its Nissan growing franchise, which should continue to drive its market share; and (ii) overwhelming responses for its attractive new models in the pipeline. 

Forecast    Given that the Myanmar market contribution is immaterial with little financial impact and relatively small market, we leave our earnings estimates unchanged at this juncture. 

Rating  MAINTAIN OUTPERFORM

Valuation     Our TP of RM7.50 is based on a targeted PER multiple of 14.8x (being the +1SD above its 3-year average forward PER).

Risks    Weaker consumer sentiment.

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

Source: Kenanga