KEY INVESTMENT HIGHLIGHTS

• 3QFY24 results fell short of expectations
• Automotive segment losses narrowed on stronger Ringgit
• All-new Nissan Kicks e-Power launching in Dec-24
• Downward revision of earnings between -97% and -255%
• Downgrade to SELL with a revised TP of RM0.36

Below expectations. Tan Chong Motor Holdings Berhad (TCM) posted a core net loss of -RM87.0m for 3QFY24, bringing total core losses for 9MFY24 to -RM140.5m. This fell short of projections, surpassing both our and the consensus full-year loss projections.

Quarterly. The Group's revenue registered a steep decline of -28.8%yoy in 3QFY24, mainly due to a drop in the automotive segment's revenue (- 25.8%yoy) which was impacted by subdued consumer sentiment and a highly competitive market landscape. The segment's LBITDA, however, narrowed by +61.8%yoy, supported by a stronger Ringgit. The financial services (hire purchase and insurance) segment recorded a revenue increase of +9.0%yoy, while its EBITDA improved by +27.8%yoy, driven by a reduction in impairment losses on hire purchase receivables. The core LATAMI deepened by -83.5%yoy, driven largely by the impact of diseconomies of scale. Compared to 2QFY24, revenue dropped by - 15.1%qoq as a result of weaker automotive sales, driving a much steeper core LATAMI of -RM87.0m (-163.9%qoq).

Outlook. In Malaysia, TCM is set to introduce the all-new Nissan Kicks e-Power, a B-segment SUV, in Dec-24. The vehicle is expected to be priced below RM130k, positioning it competitively in the hybrid SUV segment. Reportedly, TCM will begin exporting Malaysian-assembled vehicles to overseas markets for the first time in 4QFY24. In Vietnam, the Group expects the recent launch of the GAC M6 Pro (C-segment MPV), to boost sales volumes, with plans to transition to CKD assembly by 4QFY25.

Downgrade to SELL. We have revised our FY24E/FY25F estimates by - 97%/-255%, reflecting weaker automotive sales volumes. As a result, our target price has been revised downward to RM0.36 (from RM0.77), with a lower P/BV valuation of 0.1x (from 0.2x) due to the lack of catalysts for a rerating. This prompted a downgrade in our call from NEUTRAL to SELL. We maintain a cautious view of the earnings outlook, anticipating continued weakness in the near term.

Source: MIDF Research - 27 Nov 2024