Industrial & External Activities Strengthen In April

Economic Research	3 May 2017
Vietnam
Economic Update
Industrial & External Activities Strengthen In April Vietnam’s industrial and external activities gained pace in April, which suggests that its economy is maintaining a relatively robust pace moving into 2Q17. Looking ahead, we expect Vietnam’s real GDP to grow by 5.9% YoY in 2017, albeit at a more moderate pace compared with +6.2% in 2016. This is premised on:                i.      Resilient exports due to participation in free trade agreements (FTAs);               ii.      Strong inflow of foreign direct investments (FDI);              iii.      Robust private investment;              iv.      Economic restructuring and institutional reform. Industrial production (IPI) picked up in April, on account of a quicker growth in manufacturing activities and a smaller decline in mining output. Export growth gained pace during the month amid a pick-up in the growth of exports from the foreign direct investment (FDI) sector. By commodity, the acceleration was on the back of mining and manufacturing exports. Retail sales picked up during the month, supported by a quicker rate of growth in the hotel & restaurant and services sectors. Headline inflation rate eased in April, mainly due to lower costs of food, foodstuff and transportation. We expect full-year inflation to pick up to 3.5% in 2017, from +2.7% in 2016. Economist:  Vincent Loo Yeong Hong  | +603 9280 2172 Economist: Aris Nazman Maslan | +603 9280 2184

v Dollar under pressure ahead of Fed meeting

Highlights of today’s AmBank FX Daily Outlook as follow:-

v  Dollar under pressure ahead of Fed meeting v  MYR to fluctuate in the range of 4.3120-4.3381 against US dollar v  Key watch:- (i) Fed interest rate decision; (ii) Apr US ADP employment change; (iii) Apr US ISM non-manufacturing PMI; (iv) 1Q EU GDP

Tan Chong Motor (TCM MK; BUY; TP: MYR2.20) - Weak car sales in 1Q17

Tan Chong Motor (TCM MK; BUY; TP: MYR2.20) - Weak car sales in 1Q17

• To play catch up in the coming quarters. TCM’s 1Q17 may not be the best quarter to gauge the expected improvement in its 2017 operations due to a slump in 1Q17 Nissan car sales (-42% QoQ, -44% YoY), affected by changes in TCM’s marketing strategies. The expected fall in 1Q17 revenue could be mitigated at the operating level should there be more positive adjustments to component costs by Nissan Motor Corp. Nonetheless, we remain BUYers of TCM from a trough valuation angle; currently trading at 0.4x P/NTA. Our MYR2.20 TP, based on 0.5x 2017 P/NTA (-0.75 SD of mean), is unchanged.
• Adverse impact from shift in marketing strategy. TCM’s adoption of a new strategy in early-2017, which offers extended warranty (up to 7 years) instead of a discount, backfired as 1Q17 Nissan car sales took a dive to 3.4k units in Jan-Feb (-48% YoY), representing just 9% of our 2017 sales forecast of 37k units (-9% YoY). In a competitive environment, discounts remain the most effective tool to induce car purchases. TCM has since rebalanced its strategy in Mar 2017, offering both options (either extended warranty or discounts) to consumer. Monthly sales figure has since rebounded 45% MoM to 2.6k units in Mar 2017 but still below its 2016 monthly average of 3.4k units. First three months’ sales totalled 6.0k units, at 16% of our 2017 sales forecast.
• Frequency of Nissan’s cost adjustment is unknown. Despite a 13% QoQ contraction in TCM’s 4Q16 revenue, EBITDA (EBITDA margin: +1.7ppts QoQ) surprised us positively, aided by a favourable adjustment to component cost from Nissan Motor Corp (7201 JP, Not-Rated). While we understand that the adjustment by Nissan is an on-going process, what is unknown is the frequency of the adjustments. Should there be a quarterly adjustments, 1Q17’s projected revenue fall could still be partially mitigated. However, realistically, we expect 1Q17 to see losses widen again before catching up in the upcoming quarters – in line with our smaller loss forecast of MYR12m for 2017.
• Better days ahead; favourable forex to lift sentiment. Recent strength in MYR against USD and JPY will be positive to TCM, a net importer, should the momentum sustain. We estimate that ~24%/6% of TCM’s COGS are imported component costs denominated in USD/JPY.

Company Update � Genting Malaysia (HOLD, downgrade)

Top Calls

Company Update � Genting Malaysia (HOLD, downgrade) - Rising star, but looks fairly valued for now Despite raising our TP to RM6.00, we are downgrading Genting Malaysia (GENM) to HOLD from Buy, as we believe the stock is fairly valued; hence the limited upside potential to our new TP. While the company�s prospects still look strong, we think any significant upside would only materialise in 2H18, as the 20th Century Fox theme park in Genting Highland should only be operational by end-2017.

Other Calls

Economic Update � Malaysia Manufacturing PMI - Malaysia�s manufacturing PMI expands to 50.7 in April

Morning News & Market Summary

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