JF APEX Securities has maintained sell recommendation on Tan Chong Motor Holdings (TCM) with an unchanged target price of RM0.89.
It said the valuation is pegged at price to earnings ratio of 14.8 times based on the company’s earnings forecast for the year ending Dec 31, 2021 (FY21) with an earnings per share of 6 sen.
TCM has announced that its indirect wholly -owned subsidiary TC Manufacturing (Labuan) Pte Ltd has entered into a memorandum of understanding with PT. SGMW Motor Indonesia (PT SGMW) to collaborate on potential business and feasibility study to distribute PT SGMW’s vehicle products in Malaysia and Thailand.
PT SGMW’s brand known as Wuling Motors, manufactures and distributes mostly Chinese brand cars – namely Almaz, Cortez City, Cenfero S, and Formo.
“We deem the Group to take longer time to conduct the feasibility study amid trembling automotive market condition arising from Covid-19 impact as well as stiff competition among existing car marques,” said analyst Nursuhaiza Hashim.
“Moreover, we believe the group (Tan Chong Motor) needs to study on preferences and suitability of the products to suit the target markets’ demand. Therefore, we expect the contribution is insignificant in the short-run,” she added.
JF Apex Securities expects a shaky outlook for financial year ending Dec 31, 2020 (FY20) with its forecasts for FY20 and FY21 remain unchanged.
It has forecast revenue for FY20 and FY21 to be RM2.11 bil and RM3.26 bil respectively, while a net loss of RM21 mil is seen for FY20 and net profit of RM39 mil for FY21.
The firm has also forecast a loss before tax of RM10.6 mil for FY20 and a profit before tax of RM32.6 mil for FY21.
“Overall, we reckon that business operations will be challenging for TCM in view of subdued domestic Nissan car sales for FY20 as automotive industry is dampened by COVID-19 pandemic.
“Futhermore, intense competition from other car marques, tepid consumer sentiments towards big-ticket items as well as stringent loan approval could weigh on overall Group’s performance,” noted Nursuhaiza.
As at 9am today, TCM share price was at RM1.04 with a market capitalisation of 698.88 million. – Oct 2, 2020
