9MFY21 core losses narrowed to RM47.6m compared to core losses of RM71.6m in 9MFY20, and our/consensus core loss expectations of RM45.9m/RM28.8m. We deemed the results as within our expectation as we expect better sales in 4QFY21 following the re-opening of sales outlets and production as well as inter-state travel. Its overall outlook, however, remains unexciting with only one popular new model to drive volume. Maintain UP and TP of RM1.00.

9MFY21 within our expectation. 9MFY21 core losses narrowed to RM47.6m compared to core losses of RM71.6m in 9MFY20, and our/consensus core loss expectations of RM45.9m/RM28.8m. We deemed the results as within our expectation as we expect better sales in 4QFY21 following the re-opening of sales outlets and production as well as inter-state travel. No dividend was declared for the quarter, bringing 9MFY21 to 1.5 sen (9MFY20: 1.5sen)

YoY, 9MFY21 core losses narrowed to RM47.6m compared to core losses of RM71.6m in 9MFY20 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 (-25% YoY), and local Nissan vehicles sales recorded at 7,672 units (- 16% 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 all-new Nissan Serena).

QoQ, 3QFY21 recorded significant losses of RM37.0m, compared to core losses of RM18.1m in 2QFY21 concurrently with lower sales (- 31%) and lower units sold at 1,917 (-37%) due to pandemic induced lockdown in Malaysia and IndoChina markets. Its automotive business only show higher profit due to lower operating expenses amid the lockdown and favourable sales mix skewed toward the higher margin Almera.

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 19 September 2020, respectively.

Maintain UNDERPERFORM with Target Price of RM1.00 based on 0.24x FY22E BVPS (at -1.0SD to 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 - 24 Nov 2021