TAN Chong Motor Holdings Bhd is likely to see a bleak outlook moving forward with business challenges coming from both local and overseas fronts.
The company’s continued losses overseas coupled with its ongoing disputes with the Royal Malaysian Customs over unpaid excise duties amounting to RM180 mil will negate the positives from its Malaysian operations, according to Maybank IB Research.
“Tan Chong’s exclusive distributorship and after sales-service in Vietnam have expired on Sept 19 following the non-renewal decision by Nissan Motor,” wrote analyst Liaw Thong Jung in a results review.
“We see this as a setback to its earlier intention to de-risk its sole Malaysian Nissan operations and grow its regional footprint in Southeast Asia.”
Contrary to its initial expectation of an earnings turnaround in 3Q FY2020, Maybank IB Research noted that Tan Chong posted a core net loss of RM20 mil (vs -RM53 mil in 2Q FY2020) which took its 9M FY2020 core earnings loss to RM81 mil.
The higher depreciation and widening losses at its Vietnam operations in 3Q FY2020 (-RM25 mil vs RM17 mil in 2Q FY2020) continued to negate the positives at is Malaysian operations.
The car distributor’s Malaysian operations turned around as expected with earnings before interest, taxes, depreciation, and amortisation of RM79 mil in 3Q FY2020 (vs -RM24 mil in 2Q FY2020) on higher vehicles sales (+193% quarter-on-quarter to 4,800 units) and margins. The company declared an interim dividend of 1.5 sen/share for its 3Q FY2020.
All-in, Maybank IB Research maintained its “sell” rating on Tan Chong at a target price RM1.
Meanwhile, AmBank Research retained its “underweight” call on Tan Chong with a lower fair value of 67 sen/share (from 77 sen previously) to reflect the down cycle of the group’s business operations – having lost both its completely knocked down and completely built up agreements with its principal Nissan Japan on Sept 19 and Sept 30 respectively.
“We now project wider net losses of RM111.2 mil, RM70.3 mil and profits of RM4.9 mil for FY2020-2022F (vs net losses of RM111.2 mil for FY2020 and net profits of RM55.4 mil and RM64.1 mil for FY2021-2022F previously),” noted analyst Jeremie Yap.
“We cut Tan Chong’s FY2020–2022F estimates to account for (i) lower Nissan sales volume assumptions in the domestic market; and (ii) larger net losses from the group’s Vietnam operations.”
At 3.15pm, Tan Chong was up two sen or 1.9% at RM1.07 with 182,800 shares traded, thus valuing the company at RM701 mil. – Nov 25, 2020
