• Keep SELL with new MYR0.35 TP from MYR0.65, 37% downside. We think Tan Chong Motor’s outlook remains bleak due to market share loss from limited new launches and tight competition.We advise investors to avoid this counter given the absence of rerating catalysts at this juncture.

• Weak volumes amid tight competition. In 3Q24, Nissan’s sales in Malaysia fell 30% YoY (-26% MoM) to 1,697 units, bringing 9M24 volumes to 6,299 units (-16% YoY), likely due to a lack of new launches and intense competition in the non-national market, driven by the influx of lower-priced Chinese brands. Also, sales volume of its top selling model Serena fell c.20% YoY in 9M24, losing ground to cheaper MPVs such as Toyota Veloz and Mitsubishi Xpander. As a result, Nissan’s market share fell to 1.1% (from 1.3% in 2023).

• New models coming soon? We understand from management that TCM is poised to launch its e-Power offerings in Malaysia, starting with a CBU Bsegment SUV in 4Q24. Another e-Power model – an MPV – is expected to be launched by next year as well. We believe this is long overdue, considering other brands have aggressively launched various new models in both internal combustion engine (ICE) and EV segments, gaining their market share.

• Things not going great in Vietnam. Since losing its Nissan distributorship rights in 2020, TCM’s earnings in Vietnam have been on a declining trend, further worsened by the MG distributorship termination in Apr 2023. As a result, Vietnam operations posted five consecutive years of losses recorded. To recap, TCM bled in Vietnam with a MYR13m LBITDA recorded in 2Q24, bringing 1H24 loss to MYR25m as sales volumes plunged 90% YoY, despite TCM managing to secure GAC distributorship rights in Vietnam in February.

• Outlook. We expect TCM to report lower earnings QoQ and YoY in 3Q24, a 26% QoQ (-30% YoY) decline in Nissan sales volumes. We remain bearish on TCM to turn profitable within our forecast years, given the absence of a clear recovery strategy from the management. Nissan continues to lose its market share in Malaysia amidst intensifying competition. We are aware of the upside risks if there is a clear turnaround plan with proper communication by management as well as the potential value unlocking via disposal of its landbank (Figure 3) if the company’s struggles remain a going concern. Based on our back-of-the-envelope calculation, TCM’s RNAV/share is MYR1.24, way higher than our current TP.

• Keep SELL, with new MYR0.35 TP as we ascribe a lower 0.1x P/BV (from 0.2x), given the bleak outlook and absence of rerating catalysts for the stock. Our TP includes a 10% discount based on its ESG score of 2.5. Despite the upcoming e-Power model locally as well as new GAC GS8 and M8 models launched in Vietnam, we made no changes to our conservative earnings forecasts as a recovery remains out of sight.

• Upside risks include clear turnaround plan by management, value unlocking via liquidation of assets, and improving consumer sentiment.

Source: RHB Securities Research - 1 Nov 2024