Monday, August 21, 2017

FW: July Auto Stats: MY Automotive (POSITIVE), Announcement: TCM (BUY; TP: MYR2.20)


Auto Stats: MY Automotive (POSITIVE) – Recovery still intact

  • Maintain our 2017 TIV forecast of 610k units. As expected, July 2017 TIV softened 3% MoM to 48.6k units (+14% YoY), bringing 7M17 TIV to 333.0k units (+5% YoY) – on-track to meet our 2017 TIV forecast of 610k (+5% YoY). Meanwhile, a 37% MoM recovery in July TIP to 44.0k units (+12% YoY) also point to better sales ahead. We remain BUYers of MBM for its Perodua exposure and TCM on trough valuations.
  • Softer MoM, more at the non-national segment. July TIV's MoM contraction was due to a higher base on Hari Raya sales in June. The softer volume sale was more pronounced at the non-national segment, led by the continental marques - Mercedes Benz (-39% MoM, -19% YoY) and VW (-32% MoM, +91% YoY). Meanwhile, lower volume sale at Proton (-18% MoM, +54% YoY) was almost fully offset by stronger sales by Perodua (+6% MoM, +25% YoY). Weak sales by Proton was likely due to three consecutive months of slow production from April (positively, July TIP has recovered strongly [+134% MoM, +8% YoY]).  Looking into 7M17 vehicles sales, the much stronger YoY recovery at the national segment (+8%) is a likely indication of down-trading amid still weak consumer sentiment (MIER's 2Q17 CSI remained below 100 for the 12th consecutive quarter – longest compared to post-AFC/GFC periods).
  • Go for stocks with deep value. Valuations wise, we believe that PBVs have troughed for players such as TCM (0.4x FY17E PBV) and MBM (0.5x FY17E PBV). In addition, we see potential recovery for both companies with support from Nissan for the former and Perodua anchoring earnings growth for the latter.


Quick updates: Tan Chong Motor (BUY; TP: MYR2.20) – A series of litigation in 2017

·         Background: Tan Chong Industrial Equipment (TCIE), a wholly owned subsidiary of TCM, had entered into a series of lease agreements with Transnasional, Plusliner and SKMK and a series of service maintenance agreements with Transnasional, Plusliner, SKMK, SRT and Langkasuka  (collectively known as "Debtors") for the lease and service maintenance of the vehicles. The Debtors were owing to TCIE outstanding rentals and service bills amounting to MYR32.9m.

TCIE had negotiated with the Debtors on the settlement of the Debt on many occasions and after lengthy negotiations, the Debtors and KTB had mutually agreed  to enter into a Settlement Agreement with TCIE on 4 July 2016 to settle the same by way of (i) repayment of the amount of MYR16.9m in cash in several instalments; and (ii) transfer of a piece of land held under H.S.(D) 87546, PT No. 7929, Bandar Ampang, Daerah Ulu Langat, Negeri Selangor owned by MHSB to TCIE for the settlement of the balance Debt of RM16m. Simultaneously with the Settlement Agreement and as settlement of the Balance Debt, TCIE entered into a Sale and Purchase Agreement with MHSB and Nadicorp Holdings Sdn Bhd for the acquisition of the Land at a mutually agreed consideration of MYR16m. However, the Debtors had failed to make timely repayments of the Debt in accordance with the Settlement Agreement  hence, TCIE had exercised its contractual rights to repossess the vehicles leased to the Debtors.

  • No impact for now. Following TCIE's attempts to repossess its assets, it had received a sealed Writ of Summons and Statement of Claim, a sealed copy of a Notice of Application for Injunction and supporting Affidavit from Transnasional Express, Plusliner, Syarikat Kenderaan Melayu Kelantan, Syarikat Rembau Tampin, Kenderaan Langkasuka, Konsortium Transnasional Berhad and MHSB Properties (collectively known as "Plantiffs") claiming, amongst others, the following:
    • An injunction to restrain TCIE from repossessing and disposing the vehicles the subject of a Settlement Agreement between the Plaintiffs and TCIE until disposal of the action;
    • An injunction to restrain TCIE from entering into any dealing in relation to the Land and a declaration pertaining to the value of the Land of MHSB  is MYR55.6m;
    • An injunction to restrain TCIE from taking any enforcement action under the Settlement Agreement between the Plaintiffs and TCIE until disposal of the action;
    • Repayment of compensation from the acquisition of part of the Land; and
    • Repayment of the sum of RM22.7m.

TCIE's solicitors are of the opinion that the action is without any legal basis and TCIE has instructed its solicitors to file an application to strike out the action. The High Court of Malaya at Kuala Lumpur has fixed the injunction application for hearing on 23 August 2017.



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