TCHONG (4405) - Tan Chong Motor Holdings - Lagging final torque
Target RM3.62 (Stock Rating: HOLD)
TCM’s FY14 net earnings came in within our expectation, making up 102.9% of our full-year forecast but below consensus at 90.4%. As expected, a final 3 sen dividend was recommended. The intense competition in the local auto industry had badly affected TCM and its prospects in 2015 do not look very good either. We cut our FY15-16 EPS forecasts by 39-43% to reflect the tough outlook for TCM and we introduce FY17 forecasts. We lower our target price, derived from 10.2x CY16 P/E, based on the industry average. Our Hold call remains. Switch to Berjaya Auto, our top pick for the sector.
Hit hardest by competition
2014 was a year to forget for Tan Chong (TCM). It was badly affected by the intense competition in the local automotive industry. Its FY14 net earnings plunged 57.8% yoy to RM105.9m on the back of an 8.4% yoy drop in revenue to RM4.8bn. Its operating margin tumbled 3.1% pts to 4.4%, caused mainly by the aggressive promotional campaigns undertaken in order to sustain Nissan’s market share and reduce its inventory level. The weakening RM against the US$ made things worse given TCM’s large exposure to the greenback on its cost of sales due to its ASEAN parts sourcing strategy.
Nissan lost market share
From being the best-performing brand in 2013, Nissan became the worst-performing major foreign brand in 2014. Its sales volume declined 12.6% yoy to 46,352 units, due mainly to the plunge in sales volume for its best-selling model Almera. The model was hit hard by the introduction of other new models in the highly-competitive B segment. As a result, its market share shrank 1.1% pts to 7.0% and it lost its position as the second-biggest foreign car maker in Malaysia to its traditional rival Honda.
Equally challenging 2015 ahead
We expect 2015 to be another challenging year for the group. Although it has introduced a few new and facelift models at end-2014 and early-2015, namely, the Almera facelift, the new Serena S-Hybrid and the new X-Trail, weak consumer sentiment, uncertainties surrounding GST implementation and the strong US$ against the RM are the major issues that have to be overcome by TCM this year. Hence, we believe it will be difficult for Nissan to register significant volume growth and regain its market share in 2015.
Source: CIMB Daybreak - 26 February 2015
Target RM3.62 (Stock Rating: HOLD)
TCM’s FY14 net earnings came in within our expectation, making up 102.9% of our full-year forecast but below consensus at 90.4%. As expected, a final 3 sen dividend was recommended. The intense competition in the local auto industry had badly affected TCM and its prospects in 2015 do not look very good either. We cut our FY15-16 EPS forecasts by 39-43% to reflect the tough outlook for TCM and we introduce FY17 forecasts. We lower our target price, derived from 10.2x CY16 P/E, based on the industry average. Our Hold call remains. Switch to Berjaya Auto, our top pick for the sector.
Hit hardest by competition
2014 was a year to forget for Tan Chong (TCM). It was badly affected by the intense competition in the local automotive industry. Its FY14 net earnings plunged 57.8% yoy to RM105.9m on the back of an 8.4% yoy drop in revenue to RM4.8bn. Its operating margin tumbled 3.1% pts to 4.4%, caused mainly by the aggressive promotional campaigns undertaken in order to sustain Nissan’s market share and reduce its inventory level. The weakening RM against the US$ made things worse given TCM’s large exposure to the greenback on its cost of sales due to its ASEAN parts sourcing strategy.
Nissan lost market share
From being the best-performing brand in 2013, Nissan became the worst-performing major foreign brand in 2014. Its sales volume declined 12.6% yoy to 46,352 units, due mainly to the plunge in sales volume for its best-selling model Almera. The model was hit hard by the introduction of other new models in the highly-competitive B segment. As a result, its market share shrank 1.1% pts to 7.0% and it lost its position as the second-biggest foreign car maker in Malaysia to its traditional rival Honda.
Equally challenging 2015 ahead
We expect 2015 to be another challenging year for the group. Although it has introduced a few new and facelift models at end-2014 and early-2015, namely, the Almera facelift, the new Serena S-Hybrid and the new X-Trail, weak consumer sentiment, uncertainties surrounding GST implementation and the strong US$ against the RM are the major issues that have to be overcome by TCM this year. Hence, we believe it will be difficult for Nissan to register significant volume growth and regain its market share in 2015.
Source: CIMB Daybreak - 26 February 2015
