Stock Name: TCHONG
Company Name: TAN CHONG MOTOR HOLDINGS BHD
Research House: OSK
Tan Chong Motor Holdings Bhd (TCM)
(April 2, RM3.89)
Maintain buy at RM3.77, target price raised to RM4.51: News of TCM securing an exclusive distributorship in Laos is taking the group closer to establishing a regional presence.
TCM announced on Bursa that it has entered into a distribution agreement with Nissan Motor Co Ltd for the sole and exclusive rights to distribute Nissan's completely built-up vehicles in Laos. TCM will spend US$5 million (about RM16 million) over the next five years to set up showrooms and as working capital.
The distribution of vehicles will commence beginning 2Q10, with initial sales of 200 units a year.
TCM's Laos foray comes on the heels of earlier news of the group securing exclusive distributorship rights in Cambodia and a certificate of investment to set up a manufacturing plant in Vietnam. With these three Indochinese countries in the picture, it's a matter of time that its Vietnam plant will play a key role as TCM's second assembly plant catering to these three countries.
The automotive industry in Laos is undeveloped, with vehicles sales (mostly reconditioned trucks not road worthy in developed countries) growing by double digits over the past few years. Most of the roads in Laos are in very poor condition, which makes driving safer only during the day, and are prone to seasonal flooding during the months of August up to November.
The demand for vehicles is largely met by the import of used reconditioned models and the secondary car market, which accounts for more than 90% of total industry volume. Of the total circa 700,000 vehicles on the road, 80% are motorcycles, with the remainder mostly comprising of pick-ups and light trucks.
We are positive on this development given the relatively untapped Laos market, where new vehicles sales is likely to be encouraging as the country's auto industry develops. This leads us to upgrade our FY10-FY12 earnings forecast by 1%-1.8% on the back of higher vehicle sales.
Hence, our target price is raised from RM4.26 to RM4.51 as we roll our 12-month earnings forward. With Indonesia left to go, we expect more excitement ahead as TCM's regional plans unfold.
Given our new volume assumption (from the increase in unit sales from Laos) of 34,408 units for 2010 and 35,537 and 50,572 units in 2011/2012, this raises our revenue estimates by 0.6%-0.9% (RM20.9 million-RM35.2 million) over the next three years. Effectively, our bottom line for FY10-FY12 also edges up some 1%-1.8% (RM2.2 million-RM5.9 million).
Hence, we are upgrading our target price to RM4.51, with our buy call maintained. We continue to like TCM for its regional transformation going forward.
TCM may see increasing earnings momentum given that the ringgit has been strengthening against the Japanese yen in the past one week. Our sensitivity analysis suggests that a 10-sen deprecation or appreciation in our yen/ringgit assumption (at RM3.50 for every ¥100 in FY10 and RM3.27 in FY11) would respectively shave off or increase some RM14.8 million-RM18 million from TCM's net profit, or 7% on average over a two-year horizon. - OSK Research, April 2
This article appeared in The Edge Financial Daily, April 5, 2010.
Company Name: TAN CHONG MOTOR HOLDINGS BHD
Research House: OSK
Tan Chong Motor Holdings Bhd (TCM)
(April 2, RM3.89)
Maintain buy at RM3.77, target price raised to RM4.51: News of TCM securing an exclusive distributorship in Laos is taking the group closer to establishing a regional presence.
TCM announced on Bursa that it has entered into a distribution agreement with Nissan Motor Co Ltd for the sole and exclusive rights to distribute Nissan's completely built-up vehicles in Laos. TCM will spend US$5 million (about RM16 million) over the next five years to set up showrooms and as working capital.
The distribution of vehicles will commence beginning 2Q10, with initial sales of 200 units a year.
TCM's Laos foray comes on the heels of earlier news of the group securing exclusive distributorship rights in Cambodia and a certificate of investment to set up a manufacturing plant in Vietnam. With these three Indochinese countries in the picture, it's a matter of time that its Vietnam plant will play a key role as TCM's second assembly plant catering to these three countries.
The automotive industry in Laos is undeveloped, with vehicles sales (mostly reconditioned trucks not road worthy in developed countries) growing by double digits over the past few years. Most of the roads in Laos are in very poor condition, which makes driving safer only during the day, and are prone to seasonal flooding during the months of August up to November.
The demand for vehicles is largely met by the import of used reconditioned models and the secondary car market, which accounts for more than 90% of total industry volume. Of the total circa 700,000 vehicles on the road, 80% are motorcycles, with the remainder mostly comprising of pick-ups and light trucks.
We are positive on this development given the relatively untapped Laos market, where new vehicles sales is likely to be encouraging as the country's auto industry develops. This leads us to upgrade our FY10-FY12 earnings forecast by 1%-1.8% on the back of higher vehicle sales.
Hence, our target price is raised from RM4.26 to RM4.51 as we roll our 12-month earnings forward. With Indonesia left to go, we expect more excitement ahead as TCM's regional plans unfold.
Given our new volume assumption (from the increase in unit sales from Laos) of 34,408 units for 2010 and 35,537 and 50,572 units in 2011/2012, this raises our revenue estimates by 0.6%-0.9% (RM20.9 million-RM35.2 million) over the next three years. Effectively, our bottom line for FY10-FY12 also edges up some 1%-1.8% (RM2.2 million-RM5.9 million).
Hence, we are upgrading our target price to RM4.51, with our buy call maintained. We continue to like TCM for its regional transformation going forward.
TCM may see increasing earnings momentum given that the ringgit has been strengthening against the Japanese yen in the past one week. Our sensitivity analysis suggests that a 10-sen deprecation or appreciation in our yen/ringgit assumption (at RM3.50 for every ¥100 in FY10 and RM3.27 in FY11) would respectively shave off or increase some RM14.8 million-RM18 million from TCM's net profit, or 7% on average over a two-year horizon. - OSK Research, April 2
This article appeared in The Edge Financial Daily, April 5, 2010.
No comments:
Post a Comment