AMBANK Research has retained its “underweight” rating on Tan Chong Motor Holdings Bhd despite the franchise holder of Nissan vehicles in Malaysia having sealed a memorandum of understanding (MoU) with a Chinese party to make further inroads into the Vietnamese automotive industry.
Yesterday, Tan Chong announced that its Vietnam subsidiary would negotiate with King Long China for it to be the sole distributor of both completely knocked-down (CKD) and completely built-up (CBU) King Long microbus products in Vietnam.
Currently, King Long has only one product in Vietnam which AmResearch believed to be the CBU XMQ6829Y coach. Tan Chong has been the sole distributor of the said model since 2018.
“We are mildly positive on this news as it will help Tan Chong with additional CKD pipelines for its severely under-utilised Danang plant in Vietnam,” wrote analyst Jeremie Yap who also maintained Tan Chong’s fair value at 77 sen/share.
“However, we understand that it is still in discussion and the group has not guided on a timeline on when the deal will be concluded.”
Above all else, Yap also noted that both the Nissan Vietnam CKD and CBU agreements with Nissan Japan have expired on Sept 19 and Sept 30 respectively.
“We remain apprehensive on whether the entry of King Long and the CBU MG brand vehicles (TCM Vietnam was appointed by SAIC Motor as its exclusive importer and distributor on May 18) would be able to fully fill the void left by the exit of both Nissan CKD and CBU products.
Tan Chong has guided in its previous briefing that the CBU MG deal would only start to have material impact only in 4Q FY2020, “but we are expecting a delay to this venture due to the global COVID-19 pandemic,” according to Yap.
At 9.55am, Tan Chong was up 1 sen at RM1.03 with 4,200 shares traded, thus giving the company a market capitalisation of RM672 mil. – Oct 20, 2020
