FY16 core LATAMI of RM46.1m is deemed above our/consensus core LATAMI estimates of RM57.5m /RM62.5m, respectively, due to overestimation of operating expenses. Final DPS of 1.0 sen was declared, bringing FY16 DPS to 2.0 sen which was below expectation. Post-results, we maintain earnings assumptions for FY17 in lieu of the positive impact from higher selling prices. Maintain UNDERPERFORM and TP of RM1.66 given the lack of near-term re-rating catalysts.

FY16 core LATAMI of RM46.1m (-174.1% YoY) is deemed above our expectation and consensus core LATAMI estimates of RM57.5m and RM62.5m, respectively, as we foresee higher operating costs. Final DPS of 1.0 sen was declared, bringing FY16 DPS to 2.0 sen, (FY15: 5.0 sen), below expectations. We had expected a full-year dividend payment of 5.0 sen.

YoY, FY16 revenue recorded lower revenue of RM5,510.7m (-3.6%) due to poorer consumer sentiment on the back of the lower units sold of 41,305 units (-13.4%) as per MAA statistics. Nonetheless, the group was able to generate commendable revenue with the increase in selling prices of 2.8%-6.7% implemented in April 2016, primarily on the Almera, Grand Livina, Teana and X-Gear. EBIT-wise, margin eroded to 0.3% (-2.7 pts) as unfavourable USD/MYR forex rates resulted in higher cost of sales for CKD kits. In addition, marketing and promotional expenses were also higher as the group strive to maintain the Nissan brand’s presence in a diminishing auto market.

QoQ, 4Q16 sales declined by 9.0% to RM1,273m as the Auto Segment declined by 9.4% due to poorer market sentiment. Nonetheless, its EBIT margin expanded to 2.0% (+1.3 pts QoQ) with the favourable adjustment to the cost of purchase. Overall, the group enjoyed a more favourable product mix during the period, led by its 4x4 offerings, being the Nissan X-Trail and Nissan Navara. The company also launched The Nissan Teana Nismo Performance Package and Nissan Serena S-Hybrid Tuned to provide more variants in different segments.

The path forward is still challenging, as we continue to see the adverse effects of high USD/MYR forex rates against TCHONG’s business model, even more so as seen from the adverse indication in recent forex trends. Though the group may be able to keep its top- line afloat with the increase in prices as well as to offset some impact from forex, more may be needed to improve the sales outlook given the lack of new model launches until 2018, barring upcoming facelifts, to keep consumer demand constant. All else, we believe the on-going predicament will continue to provide a challenging operating environment for the general automotive market with: (i) lacklustre consumer sentiment on the back of rising cost of living, (ii) tighter financing conditions dampening vehicle purchases, and (iii) intense domestic competition as well as higher operating costs from marketing and higher import cost on unfavourable currency fluctuations.

Post results, we maintain earnings assumptions for FY17. In the meantime, we introduced FY18E earnings assumptions of RM36.0m. We project better performance as compared to FY17 in anticipation of the recovery in sales volumes with more favourable selling prices.

We maintain UNDERPERFORM and TP of RM1.66 (based on unchanged 0.4x PBV, which is close to -1.5SD below its average 3- year mean forward PBV, against FY17E BVPS), given the lack of any significant near-term rerating catalysts. In addition, further strengthening of USD rates may hamper the performance of the group.

Source: Kenanga Research - 01 Mar 2017