• Keep SELL, with new MYR0.32 TP from MYR0.35, 36% downside. 3Q24 saw another loss-making quarter for Tan Chong Motor, with 9M24 core net losses growing to MYR142m. 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 model launches. We reaffirm our SELL call, as we think TCM will remain in the red without any catalysts to reverse its growing losses.

• Below expectations. 3Q24 core net loss of MYR87.3m brought 9M24 core net losses to MYR142.1m – this underperformed our and Street’s FY24 expectations for core net losses of MYR82m and MYR101m. 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 3Q24, as expected.

• Results review. TCM recorded softer revenue in 3Q24 (-29% YoY), which was mainly due to weaker automotive segment revenue (-26% YoY), likely due to lower sales volumes (c.-30% YoY). This resulted in 3Q24 LBITDA plunging to MYR53m (from LBITDA of MYR9m in 3Q23). Though its 3Q24 net loss was partially dragged by a MYR65m FX loss, TCM continues to record losses – this is because its current revenue levels are insufficient to cover its costs.

• Unexciting outlook. As we are expecting Malaysia’s TIV to soften in 2024, we think TCM's sales volumes could continue to fall YoY. We understand from management that TCM is poised to launch its e-Power offerings in Malaysia, starting with a CBU B-segment SUV in 4Q24. Another e-Power model – an MPV – is expected to be launched by next year as well. However, 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 10M24, Nissan's market share in Malaysia stood at 1.02% (FY23: 1.26%).

• Forecast. We now forecast bigger net losses of MYR89m-192m in FY24-26, from MYR38-82m as we trim our earnings forecasts to be conservative by lifting our cost assumptions.

• Keep SELL, with a lower MYR0.32 TP based on an unchanged P/BV of 0.1x to FY25F book value, 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. 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 Securities Research - 27 Nov 2024