FW: Briefing update: Tan Chong Motor (TCM MK; BUY; TP: MYR2.15) - Limited downside

 

 

Good morning,

 

Here are some key pointers from TCM’s analyst briefing yesterday.

Tan Chong Motor (TCM MK; BUY; TP: MYR2.15) – Limited downside

·         The newly launched Serena S Hybrid MPV was well received with up to 1,300 bookings recorded currently. Being one of Nissan's higher range product, margins to TCM would be better. For the Serena, management is looking at monthly sales of 500 units in the honeymoon stage (first 3-4 months).

·         TCM to adopt smaller volume sales strategy but focus on margin recovery. High volume models typically are susceptible to price wars - unhealthy in the long run. This model is best seen at Bermaz which has adopted an asset light model with focus on SUV segment for profits.

·         Sales improvement in Indo-China ops are mainly lifted by higher sales of CKD Navara and X-Trail. Kawasaki motorcycle sales in Vietnam also grew significantly (>+30% QoQ). Negative production variance at Da Nang, Vietnam plant should narrow as volume is expected to go up progressively. Signs of better financing facilities for car buyers from banks in Vietnam is seen by management.

·         Known upcoming new CKD launch in Malaysia would be the Urvan which is expected to gain from the did continuation of the Toyota Hiace. Currently, this segment is dominated by Chinese marques. TCM is also looking to launch the new Nissan Leaf EV by year end - very low volume model, only for marketing purpose.

·         Management is looking at a revenue rebalancing to reduce reliance on Nissan and passenger vehicle segment which led to the proposed investment in Bagan Datuk for a commercial vehicle hub targeted for exports. While the project is under review following the change in government, this plan will likely go on (MYR100m capex for next 3 years). Another possible area for this investment could be in Serendah where TCM has vacant land space. Management is also in pursue to grow export sales as a form of revenue rebalancing.

·         Management's sensitivity analysis suggest that for every 1sen change to USDMYR on a full year basis, earnings will be impacted by MYR3m.

·         Earnings recovery remains on track. Our forecast, BUY rating and TP are unchanged.

 

 

 

Ivan Yap | Analyst, Equity Research

Maybank Investment Bank Berhad (15938-H)
7^th Floor, Tower C, Dataran Maybank, 1, Jalan Maarof, 59000, Kuala Lumpur, Malaysia

Tel: +603 2297 8612 | Fax: +603 2284 2137
Email: ivan.yap@maybank-ib.com

 

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