1QFY22 plunged into core losses of RM16.6m compared to core profit of RM7.4m in 1QFY21 and core profit of RM32.8m in 4QFY21, and our/consensus FY22 core profit expectation of RM12.5m/RM23.5m. We deemed the results as within our expectation as its 1QFY is typically the weakest quarter for the group following a usually strong previous 4QFY and also on expectation of a new launch ahead (face-lifted Nissan Serena). Overall outlook, however, remain unexciting. Maintain UP and TP of RM1.00.

1QFY22 within our expectation. 1QFY22 plunged into core losses of RM16.6m compared to core profit of RM7.4m in 1QFY21 and core profit of RM32.8m in 4QFY21, and our/consensus FY22 core profit expectation of RM12.5m/RM23.5m. We deemed the results as within our expectation as its 1QFY is typically the weakest quarter for the group following a strong previous 4QFY and also on expectation of a new launch ahead (face-lifted Nissan Serena). Interim dividend of 1.5 sen was declared for quarter, as expected

Results highlights, 1QFY22 plunged into core losses of RM16.6m compared to core profit of RM7.4m in 1QFY21 and core profit of RM32.8m in 4QFY21 despite stronger YoY sales (+30% YoY, -11% QoQ) mainly due to unfavourable sales mix, lower foreign exchange (forex) gain, higher operating expenses, and one-off litigation compensation of RM3.9m. Local Nissan vehicles sales recorded at 3,766 units (+38% YoY, -19% QoQ), 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 previous years higher price all-new Nissan Serena). On the other hand, Financial services segment recorded weak sales and concurrent weak segmental profit mainly due to impairment loss on hire purchase receivables recognised in the current quarter and higher operating expenses. Whereas, Other segment was affected by higher operating expenses and lower net foreign exchange gain which arose from transactions and outstanding balances denominated in foreign currencies.

Outlook. Despite the launching of the all-new Nissan Almera in November 2020, overall sales have remained weak, with only one model to drive the group. It is still uncertain at the moment whether this will prove to be the 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 FY23E 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 - 25 May 2022