Its 9MFY20 results plunged further into the red with core losses of RM71.6m compared to core PATAMI of RM39.6m in 9MFY19, below our/consensus expectation of FY20 core losses of RM32.2m/RM45.5m, respectively, due to higherthan-expected operating expenses. As such, we revise FY20E CNL to RM85.0m from RM32.2m but keep FY21E CNP unchanged. We expect the all-new Nissan Almera which just recently launched to drive a better recovery next year. Maintain MP with unchanged TP of RM1.00

9MFY20 results below expectations. Its 9MFY20 results plunged further into the red with core losses of RM71.6m compared to core PATAMI of RM39.6m in 9MFY19, below our/consensus expectation of FY20 core losses of RM32.2m/RM45.5m, respectively, due to higherthan-expected operating expenses. YTD-FY20 DPS stood at 1.5 sen with the dividend announced for the quarter (YTD-FY19: 2.0 sen).

YoY, 9MFY20 results plunged further into the red with core losses of RM71.6m compared to core PATAMI of RM39.6m in 9MFY19, suffering from a highly competitive environment in the domestic and overseas markets as well as weaker consumer sentiment caused by the Covid-19 pandemic, which weakened its sales (-31%), and worsened by the unfavourable forex rate and higher operating expenses to sustain idle operations. The local Nissan vehicles sales was at 9,167 units (-42%), as per MAA statistics - lacking new launches to drive volume to counter the competition. The financial services segment remained depressed with a profit of RM1.3m (-93%) due to higher impairment loss on hire purchase receivable mostly recognised in 2QFY20.

QoQ, 3QFY20 core losses was reduced to RM9.7m compared to core losses of RM53.8m in 2QFY20, bouncing off the suppressed market condition under the various stages of MCO in the preceding quarter, and further boosted by strong demand from the sales tax exemption. The total group sales soared 88% with the local Nissan vehicles sales at 4,785 units (+193% QoQ), as per MAA statistics.

Outlook. With the launching of long-awaited all-new Nissan Almera on 1 st November 2020, we believe this could be a fresh catalyst for TCHONG to return to profitability, and to offset the negative impact from its Vietnam operation from under-utilised Vietnam Danang plant and the expiration of both Vietnam CBU and CKD agreements with principal on 30 September 2020 and 19th September 2020 respectively. On the other hand, in Vietnam, the overseas Distribution Agreement (ODA) with SAIC Motor International Co., Ltd (SMIL) could be a saving grace in the next five years. The group had launched two new models of MG brand SUV (CBU) in August 2020 which is highly anticipated to drive sales growth for the Vietnam market.

More than double FY20E CNL to RM85.0m from RM32.2m, due to higher-than-expected operating expenses.

Maintain MARKET PERFORM with unchanged Target Price of RM1.00 based on 0.22x FY21E BVPS (at -1.0SD of its 5-year historical mean PBV). We expect a better FY21 buoyed by some degree of pentup purchases by consumers after holding back this year, and continued delivery of back-log bookings of the all-new recently launched Nissan Almera.

Key risks to our call include: (i) lower-than-expected car sales, and (ii) lower-than-expected margin.

Source: Kenanga Research - 25 Nov 2020