1QFY21 turned to the black with core PATAMI of RM7.4m from core loss of RM8.1m in 1QFY20 and core loss of RM65.6m in 4QFY20, compared to our/consensus core loss/core profit expectations of RM29.7m/RM13.3m. We deemed the results broadly within our expectation as we expect weaker results ahead with the recent weakening in USD/MYR forex, highly competitive new launches from other marques, and global chip shortage impact starting April 2021. Maintain MP and TP of RM1.25 with recovery driven by its bread-and-butter all-new Almera.

1QFY21 within our expectation. Its 1QFY21 results turned to the black with core PATAMI of RM7.4m from core loss of RM8.1m in 1QFY20 and core loss of RM65.6m in 4QFY20, compared to our/consensus core loss/core profit expectation of RM29.7m/RM13.3m. We deemed the results broadly within our expectation as we expect weaker results ahead with the recent weakening in USD/MYR forex, highly competitive new launches from other marques, and global chip shortage impact starting April 2021. DPS of 1.5 sen was declared for the quarter, within expectation.

Results highlights, 1QFY21 turned into the black with core PATAMI of RM7.4m from core loss of RM8.1m in 1QFY20 and core loss of RM65.6m in 4QFY20 mainly due to better sales mix, lower operating expenses, reversal of impairment on hire purchase receivables and unrealised forex gain. Most of the improvement in car sales margin came from the introduction of the all-new Almera Turbo. This was despite 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 (-19% YoY, -21% QoQ) with the local Nissan vehicles sales at 2,727 units (-1% YoY, -45% QoQ), as per MAA statistics - lacking new launches to drive volume to counter the competition. Note that, 4QFY20 huge losses was impacted by the settlement of the bills of demand from Royal Malaysian Customs Department (latest settlement around RM109m, for which all the relevant financial impact was provided in 4QFY20).

Outlook. With the launching of all-new Nissan Almera in November last year, we believe this could be a fresh catalyst for TCHONG to return to profitability, and to offset the negative impact from its under-utilised Danang plant in Vietnam and the expirations of both CBU and CKD agreements there with its principal on 30 September 2020 and 19th September 2020, respectively. On the other hand, the overseas Distribution Agreement (ODA) with SAIC Motor International Co., Ltd (SMIL) for MG brand SUV (CBU) and recently, SAIC GM Wuling Automobile for Pickup and Cargo Van in Vietnam could be a saving grace in the next five years.

Maintain MP with unchanged Target Price of RM1.25 based on 0.29x FY22E BVPS (at 5-year historical mean PBV).

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

Source: Kenanga Research - 25 May 2021