FW: Results: Tan Chong Motor (TCM MK; BUY; TP: MYR2.15), PECCA Group (PECCA MK; BUY; TP: MYR1.60)

 

 

Good morning,

 

We have a results review on TCM and Pecca.

Tan Chong Motor (TCM MK; BUY; TP: MYR2.15) - Within expectations

• Still in the red. 9M17 core net loss of MYR73m made up 95% of our FY17 estimate, in-line  as we expect losses to narrow significantly in 4Q17, aided by a year-end incentive from Nissan Japan, a repeat of 4Q16. On the brighter side, 3Q17 core net losses have narrowed QoQ while inventory was reduced further to MYR1.3b (-3% QoQ). We remain BUYers of TCM from a valuation angle, currently trading at its trough of 0.4x P/NTA. Our TP is unchanged at MYR2.15, pegged to an unchanged 0.5x 2017 P/NTA (-1SD).
• A temporary fix in 4Q17? Weaker 3Q17 revenue (-6% QoQ, -8% YoY) from slower volume sales led to EBITDA margin contracting -0.5ppt QoQ, -1.9ppt YoY. Nonetheless, 3Q17 core net loss of MYR19m narrowed QoQ (-9%) mainly due to positive taxes in the quarter. Core net loss excludes provision on receivables which we have taken as a one-off. Into 4Q17, we expect TCM to receive some incentive from Nissan Japan, mainly to its ASEAN distributors who are affected by unfavorable forex. Recall that TCM’s 4Q16 results saw a favourable adjustment to cost of purchase from Nissan Japan which momentarily lifted earnings back to the black.
• MYR’s recovery is a catalyst. Backed by above-expectations real GDP growth, MYR has gained against major currencies (USD and JPY) which is a catalyst to TCM whose purchases of imported components are denominated in those currencies; ~40% of component cost are imported, of which 80:20 are denominated in USD:JPY. Sustained strength in MYR could help TCM regain some margins, provided that its existing inventories are cleared to free up working capital for future purchases. We expect TCM to see favourable impact from this in the next six months.

 

PECCA Group (PECCA MK; BUY; TP: MYR1.60) - A slow start, as expected

• Rerouting to growth next. Despite 1QFY6/18 earnings making up just 14% of our full-year forecast, the results are in line as we expect much stronger quarters ahead, riding on Perodua’s successful launch of the all-new Myvi model which will translate into higher sales for Pecca’s OEM division; Pecca is the sole supplier of leather car seat covers to Perodua. Our earnings forecasts, BUY rating and MYR1.60 TP (14.5x CY18 PER, 20% premium to peers valuation) are unchanged.
• A strong start for the all-new Perodua Myvi. As of 24 Nov 2017, it was reported that Perodua has recorded 13k bookings for the new Myvi model, of which 1k units have been delivered (80% of cars delivered are the 1.5L models). Based on a narrow price gap of MYR3,500 vis-à-vis the 1.5L Premium X variant, we expect ~50-55% of total bookings recorded would be for the 1.5L Advance variant which carries a notable difference in specifications (i.e. leather car seats and Advance Safety Assist - a feature that cannot be added externally). This would be positive for Pecca’s OEM division.
• Undervalued. Excluding its commendable net-cash of MYR98m as at end-Sep 2017, valuations are undemanding at just 7x CY18 PER. Strong cash generation and cash balance enable Pecca to pay out a higher interim DPS of 3sen (vs. 2sen in 1QFY6/17). We now expect FY18 dividend to hit 6sen (from 5sen in FY6/17), representing a payout of 56% and a yield of 4.6%.

 

 

 

 

 

Maybank Investment Bank Berhad (15938-H)
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Email: ivan.yap@maybank-ib.com

 

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