FY21 core losses narrowed to RM18.2m compared to core losses of RM137.2m in FY20, and our/consensus core loss expectations of RM45.9m/RM53.5m. We deemed the results as above expectations on stronger-than-expected 4QFY21 performance. While other automakers are ramping up new launches in CY2022, we believe its overall outlook remains unexciting with only one popular new model to drive volume. Maintain UP and TP of RM1.00.

FY21 above expectations. FY21 core losses narrowed to RM18.2m compared to core losses of RM137.2m in FY20, and our/consensus core loss expectations of RM45.9m/RM53.5m. We deemed the results as above expectations on stronger-than-expected 4QFY21 performance. No dividend was declared for the quarter, bringing FY21 to 1.5 sen (FY20: 3.0 sen)

YoY, FY21 core losses narrowed to RM18.2m compared to core losses of RM137.2m in FY20 mainly due to better sales mix, lower operating expenses, lower impairment on hire purchase receivables and higher unrealised foreign exchange gain in the current year 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 (-14%). Local Nissan vehicles sales recorded at 12,339 units (-13%), as per MAA statistics, relying only on one popular model to drive volume to counter the competition (via the volume-driven lower price tag All-New Nissan Almera compared to last year higher price all-new Nissan Serena).

QoQ, 4QFY21 soared strongly into the black with core PATAMI of RM32.8m compared to core losses of RM37.0m in 3QFY21 in concurrent with higher sales (+97%), which strongly recovered from 3QFY21 lockdown quarter, and further boosted year-end promotional sales. Local Nissan vehicles sales recorded at 4,667 units (143%), as per MAA statistics.

Outlook. Despite the launching of all-new Nissan Almera in November 2020, overall sales is still weak, 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 strongly 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 - 1 Mar 2022