• Keep SELL, revised MYR0.65 TP from MYR0.73, 12% downside. 2Q24 saw another loss-making quarter for Tan Chong Motor, with 1H24 core net losses growing to MYR55m. The company remains on a loss-making streak, as sales volumes continue to drop due to weak demand for its models and the lack of new models being launched. We reaffirm our SELL call, as we think TCM will remain in the red without any catalysts to reverse its growing losses.

• Below expectations. 2Q24 core net loss of MYR35.7m brought 1H24 core net losses to MYR54.8m – this underperformed our and Street’s FY24 expectations for core net losses of MYR72m and MYR74m. The deviation from our estimate was mainly due to higher-than-expected expenses, as revenue was in line with our expectations. No dividend was proposed in 2Q24, as expected.

• Results review. TCM recorded softer revenue in 2Q24 (-12% YoY), which was mainly due to weaker automotive segment revenue (-12% YoY), likely due to lower sales volumes (c.-13% YoY). This resulted in 2Q24 EBITDA plunging 97% YoY. Though its 2Q24 net profit was partially dragged by a MYR7.7m FX loss, TCM continues to record losses – this is because its current revenue levels are insufficient to cover its costs.

• Outlook remains unexciting. As we are expecting Malaysia’s TIV to soften in 2024, we think TCM's sales volumes could continue to fall YoY. While we understand from management that the new Nissan Almera has been receiving strong orders, we believe the local market continues to favour national carmakers due to better pricing. The other non-national carmakers also have new launches in the pipeline, leaving Nissan at a disadvantage. Given the lack of new model launches, we expect TCM to continue losing ground to its rivals in terms of market share. As of 7M24, Nissan's market share in Malaysia stood at 1.15% (FY23: 1.26%).

• Forecast. We now forecast net losses of MYR82m for FY24 from net losses of MYR72m previously. We trim our FY24F earnings to be conservative by lifting our cost assumptions. FY25F-26F earnings remain unchanged at this juncture.

• Keep SELL, with a lower MYR0.65 TP based on a rolled forward P/BV of 0.2x to FY25F book value, as the stock lacks earnings visibility. The 0.2x P/BV is at -2SD from its 5-year mean. Our TP also includes an ESG discount of 10%. We continue to recommend investors to dispose their positions, as we think TCM not only lacks positive catalysts, but might also undergo a further de-rating due to its continuing losses.

• Key upside risks include stronger-than-expected demand for Nissan vehicles and better-than-expected FX movements.

Source: RHB Research - 2 Sep 2024