1HFY21 core losses narrowed to RM10.6m compared to core losses of RM62.0m in 1HFY20, and compared to our core loss/consensus core profit expectations of RM45.9m/RM9.6m. We deemed the results as within our expectation as we expect weaker results ahead with the closure of sales outlets and production until 16th August 2021, as well as highly competitive new launches from other marques. Maintain UP and TP of RM1.00.

1HFY21 within our expectation. 1HFY21 core losses narrowed to RM10.6m compared to core losses of RM62.0m in 1HFY20, and our core loss/consensus core profit expectations of RM45.9m/RM9.6m. We deemed the results as within our expectation as we expect weaker results ahead with the closure of sales outlets and production until 16th August 2021, as well as highly competitive new launches from other marques. No dividend was declared for the quarter, bringing 1HFY21 to 1.5 sen (1HFY20: nil)

YoY, 1HFY21 core losses narrowed to RM10.6m compared to core losses of RM62.0m in 1HFY20 mainly due to better sales mix, lower operating expenses, and unrealised forex gain with most of the improvement in car sales’ margin coming 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 (-1.3% YoY) but it chalked up higher local Nissan vehicles sale at 5,755 units (+31% YoY), as per MAA statistics relying only on one popular model to drive volume to counter the competition (volume driven lower price tag All-New Nissan Almera compared to last year higher price-tag All-new Nissan Serena).

YoY, 2QFY21 turned to losses of RM18.1m, compared to core net profit of RM7.4m in 1QFY21, despite higher sales (+7.6%) and higher units sold at 3,028 (+11%), due to unfavourable sales mix and timing of higher operating expenditure in relying on only one popular model to drive volume to counter the competition.

Outlook. Despite the launching of all-new Nissan Almera in November last year, overall sales is still weak, and with only one model to drive the group, it is still uncertain at the moment whether this will prove to be the fresh catalyst needed for TCHONG to return to profitability, and to offset the negative impact from its under-utilised Danang plant in Vietnam and the expiration 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 vehicle and cargo van in Vietnam could be a saving grace in the next five years.

Maintain UNDERPERFORM with unchanged Target Price of RM1.00 based on 0.24x FY22E BVPS (at -1.0 SD 5-year historical mean PBV).

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

Source: Kenanga Research - 25 Aug 2021