Although  1H13  earnings  were  slightly  below  expectations,  the  outlook for  the  remainder  of  the  year  remains  positive.  FX  hedging  should preserve  margins  through  2H13,  while  prospects  for  sales  are  also looking up on the back of strong market demand for the Serena Hybrid MPV  and  next  month’s launch  of  the  all-new  Grand  Livina.  Maintain BUY, while its TP is cut to MYR6.80.

- Slightly  below  expectations,  Tan Chong’s 2Q13 results were slightly below our expectations but broadly in line with consensus estimates. Net profit  for  the  quarter  of  MYR67.4m  (-19.9%  q-o-q  and  +55.9%  y-o-y) brought  cumulative  net  profit  for  1H13  to  MYR151.4m  (+102.4%  y-o-y), reaching  41.8% of our previous  2013  forecast and  43.3% of  consensus estimates.  We  expect  a  better  2H13  from  a  volume  perspective,  given that showroom traffic has increased since June while the all-new Grand Livina  MPV  will  be  launched  next  month.  Despite  the  weaker  MYR, margins should be maintained through much of 2H13 with  the company having  hedged  forward  the  bulk  of  its  FX  requirements  until  mid-4Q13. Tan  Chong  declared  a  six  sen  interim  gross  DPS  and  nine  sen  special gross DPS (less tax). The ex-dividend date is 11 Sept.

- Lower  earnings  in  line  with  volume  contraction.  Revenue  for  the quarter  declined  20.6%  sequentially  to  MYR1.14bn,  in  line  with  the 21.5%  q-o-q  decline  in  new  vehicle  registrations.  The  decline  in  new vehicle sales during 2Q13 was attributed to consumers postponing their purchase  decisions  pending  clarity  on  possible  car  price  reductions. Revenue  for  1H13  grew  30.9%  y-o-y  to  MYR2.58bn  due  to  the  lower base  in  1H12  given  that  the  volume  seller,  the  Almera,  was  only launched  in  Nov  2012.  The  EBIT  margin  for  1H13  expanded  to  8.7% (1H12:  5.9%),  reflecting  the  improved  operating  leverage  in  addition  to lower  average  JPY  exchange  rates.  Indochina  remains  a  work-in-progress, with Nissan Vietnam registering a MYR7.9m pre-tax loss. 

- TP  cut  to  MYR6.80.  We  trim  our  2013-14  earnings  forecasts  by  3.9% and 2.6% respectively. While we maintain our BUY call on the stock, the macroeconomic environment has turned more cautious. Accordingly, we are lowering our target 2014 P/E to 11x (from 11.5x) and trim our TP to MYR6.80 (from MYR7.30).

Source: RHB