Stepping up its regional aspiration. TCM’s move into Myanmar’s auto market will further strengthen its expanding foothold in the IndoChina region. While this development may not be meaningful in the short term, we believe it is a significant long-term positive as it allows TCM to: (i) ride on the prospective growth of Myanmar’s liberalising automotive market, and (ii) eliminate single-country franchise risk. TCM remains the top pick within our auto universe with 19% upside to our TP of MYR8.05, which is based on 13x FY14 EPS.

Steers into Myanmar auto market. TCM has entered into an agreement with Nissan Motor Co Ltd (NML) to be the sole and exclusive distributor of Nissan’s completely built-up (CBU) vehicles in Myanmar. This arrangement, for a period of five years, will allow TCM to build its dealership franchise as well as perform after-sales services. For this, TCM will invest about USD2.5m on working capital and infrastructure (i.e. showrooms) over the next three years. Operationally, TCM is scheduled to commence operations in Myanmar by 3Q13, and projects initial sales of 300 units p.a..

Regional presence spanning five countries. Apart from its stronghold in Malaysia, TCM now pilots Nissan distributorships in four other countries including Myanmar (Vietnam, Cambodia, Laos). With a population of 64m people (Malaysia: 29m) and just under 2m vehicles (Malaysia: 22m) on the road, Myanmar’s auto market offers tremendous growth opportunities especially since the government opened up the vehicle market to imports in 2012. Subsequently, big names such as Toyota, Suzuki, Subaru and Ford have set up facilities and dealerships to capture demand there.

Reiterate BUY. While we are positive on this development, we keep our forecasts unchanged for now, as TCM’s operations in Myanmar are unlikely to make a meaningful contribution in the short term. However, over the longer term, Myanmar offers TCM vast growth opportunities owing to its low vehicle penetration rate. With an operational manufacturing plant in Da Nang, Vietnam, TCM is well prepared to meet demand in the Indo-China region.

Source: Maybank Research - 30 Jul 2013