MIDF Research has upgraded Tan Chong Motor Holdings Bhd (TCM) to a buy with an unchanged target price of RM1.30, citing the new Nissan Almera launch slated for the second half of this year to improve the margins of the company.
The research house noted that the Almera model is “long overdue for replacement” having been in the market for eight years. However, details on spec and pricing are not available yet.
“At its launch back in 2012, management was targeting monthly volumes of 1,000 to 2,000 units per month, though actual volumes registered in the initial months of launch were much better at over 2,000,” said its analyst Hafriz Hezry.
Another point to note is that the Almera had its negotiations and kit pricing occur when the US dollar was at the level of about RM3.20.
“Given the significant depreciation of the ringgit now (which is at about RM4.18 to the US dollar), the current generation Almera would have turned into a barely profitable model,” says Hafriz.
“However, costing for the new Almera is likely to have been negotiated closer to current foreign exchange levels, which should improve the yields generated from the model, though we would not rule out some increase in end-pricing,” he adds.
Accordingly, the forecast for TCM now factors in a 56% year-on-year (yoy) growth for the company’s 2020 financial year, with the growth driven by the launch of the new Almera, which should be accompanied by improved margins.
Hafriz also notes that TCM’s share price has “retraced significantly yet again,” after the company’s weak results for the fourth quarter of its 2019 financial year, which had seen a lower revenue of RM974.6 mil and a core net profit of RM10.2 mil.
“In the past 12 months, TCM’s share price has corrected by 30%. We think that the selling is overdone, notwithstanding possibly another weak quarter in 1Q20, due to the shorter quarter given festivities and the short month in February,” says Hafriz, noting that the upgrade to its call comes from seeing value emerging in the counter.
At the noon close, TCM’s shares were last done at RM1.20, up six sen, with 18,000 shares changing hands. – March 5, 2020
