TCHONG (4405) : Tan Chong Motor Holdings - Braking harder
Target RM3.95 (Stock Rating: HOLD)
TCM’s 9M14 core net profit came in well below expectations, accounting for 29% of our full-year forecast and 43% of consensus. No dividend was declared, as expected. The aggressive pricing strategy that was undertaken to sustain Nissan’s market share has been detrimental to TCM’s profit margins. With the competition in the local automotive industry set to continue, we cut our FY14-16 EPS forecasts by 19-59%. We roll over our RNAV-based valuation to FY16 and cut our target price due to the lower anticipated earnings, but retain our Hold call. Switch to Berjaya Auto for our sector’s top pick.
Earnings hit by competition
TCM’s 9M14 core net earnings plunged 58.3% yoy to RM72.6m. This was hugely disappointing and far below what we had expected. TCM has been adversely affected by the increasing competition in the local automotive scene, leading to Nissan’s 17.7% yoy decline in sales volume to 32,609 units in 9M14. In order to address its declining sales volume, TCM had resorted to sacrificing its profit margin with the aim of sustaining its market share and lowering its inventory level. The aggressive campaigns and price war resulted in lower profitability, with TCM’s operating margin declining 2.0% pts yoy in 9M14.
Market share loss
Nissan lost its position as the second-largest non-national brand to Honda this year, with its market share shrinking 1.5% pts yoy to 6.6% in 9M14. While its B-segment model, the Almera, was its star performer last year, the model has been badly hit by the introduction of various new models in the highly competitive A-segment and B-segment by its competitors this year.
Bleak outlook
With a delay in the launch of its A-segment model and its Indochina operation still incurring losses, we believe that the tough operating environment is set to continue for TCM. We anticipate that TCM will continue its aggressive pricing strategy, especially in the A and B segments, in order to sustain its market share, which could lead to continuous margin pressure.
Source: CIMB Daybreak - 27 November 2014
Target RM3.95 (Stock Rating: HOLD)
TCM’s 9M14 core net profit came in well below expectations, accounting for 29% of our full-year forecast and 43% of consensus. No dividend was declared, as expected. The aggressive pricing strategy that was undertaken to sustain Nissan’s market share has been detrimental to TCM’s profit margins. With the competition in the local automotive industry set to continue, we cut our FY14-16 EPS forecasts by 19-59%. We roll over our RNAV-based valuation to FY16 and cut our target price due to the lower anticipated earnings, but retain our Hold call. Switch to Berjaya Auto for our sector’s top pick.
Earnings hit by competition
TCM’s 9M14 core net earnings plunged 58.3% yoy to RM72.6m. This was hugely disappointing and far below what we had expected. TCM has been adversely affected by the increasing competition in the local automotive scene, leading to Nissan’s 17.7% yoy decline in sales volume to 32,609 units in 9M14. In order to address its declining sales volume, TCM had resorted to sacrificing its profit margin with the aim of sustaining its market share and lowering its inventory level. The aggressive campaigns and price war resulted in lower profitability, with TCM’s operating margin declining 2.0% pts yoy in 9M14.
Market share loss
Nissan lost its position as the second-largest non-national brand to Honda this year, with its market share shrinking 1.5% pts yoy to 6.6% in 9M14. While its B-segment model, the Almera, was its star performer last year, the model has been badly hit by the introduction of various new models in the highly competitive A-segment and B-segment by its competitors this year.
Bleak outlook
With a delay in the launch of its A-segment model and its Indochina operation still incurring losses, we believe that the tough operating environment is set to continue for TCM. We anticipate that TCM will continue its aggressive pricing strategy, especially in the A and B segments, in order to sustain its market share, which could lead to continuous margin pressure.
Source: CIMB Daybreak - 27 November 2014
