FW: Results: Tan Chong Motor (TCM MK; BUY; TP: MYR2.15) - A positive surprise

 

Tan Chong Motor (TCM MK; BUY; TP: MYR2.15) - A positive surprise

• Back to black; reiterate BUY. After two years of losses, TCM has finally turned around, recording a core net profit of MYR7m in 1Q18 – above expectations. 1Q18 was mainly lifted by (i) MYR’s strength and (ii) better sales mix. Looking ahead, with new model launches (i.e. Serena S Hybrid) to boost sales and a persistent MYR strength to contain imported costs, we have turned more upbeat on TCM’s earnings recovery, lifting FY18/19/20E earnings by 55%/16%/4%. Our TP is unchanged at MYR2.15, pegged to 0.5x 2017 P/NTA (-1SD).
• Ending its quarterly loss streak. 1Q18 core earnings surprised on the upside at 33%/35% of our/consensus full-year forecasts. Despite a 4% QoQ decline in revenue due to a 17% QoQ fall in car sales, 1Q18 EBITDA improved 12% QoQ, mainly lifted by favourable impact from MYR’s strength on imported component costs. Coupled with lower taxes, TCM reported its first quarterly earnings after eight quarters of losses. We also saw YoY improvement for TCM’s key operations and was especially encouraged by narrower losses at its Vietnam operation whereby 1Q18 LBITDA fell 40% YoY to MYR4.2m.
• In better shape; raise FY18/19 earnings by 55%/16%. YTD strength in MYR against USD and JPY have had a better-than-expected impact to TCM’s margins; ~24%/6% of TCM’s COGS are imported component costs denominated in USD/JPY. Also, with new model launches to boost sales in 2H18, we are certain that TCM would be able to report better earnings ahead. MYR’s sustained strength and better sales mix, to be contributed by Nissan’s newly launched Serena S Hybrid MPV, are key determinants behind our earnings upgrade.
• Trough P/BV valuations. Despite share price having gain 18% YTD, TCM’s P/NTA valuation remains undemanding, near its trough of 0.4x; we see limited downside to the stock. Further earnings recovery in the sequential quarters should draw some interest back to this stock. Maintain BUY. 

 

 

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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