Stock Name: TCHONG
Company Name: TAN CHONG MOTOR HOLDINGS BHD
Research House: MIDF
Tan Chong Motor Holdings Bhd
(Feb 24, RM4.90)
Upgrade to buy at RM4.90 with revised target price RM5.60 (from RM4.60): Tan Chong's FY10 net profit of RM229.7 million came within ours but was slightly below consensus expectations, making up 94.6% and 88.4% of the full-year forecasts'' respectively. Tan Chong declared a final gross dividend of six sen per share, bringing total gross dividends of 12 sen per share and yield of 2.2% for FY10.
For FY10, net profit surged by 49.8% on the back of a 22.7% increase in revenue to RM3.51 billion. The positive performance was due to: (i) stronger total industry volume (TIV) sales contribution especially in 1HFY10; (ii) transition from higher commercial vehicle sales mix to stronger passenger models which accounted 76% of total sales in FY10 from 73.8% in FY09; (iii) lower imported costs due to stronger ringgit; and (iv) low base factor of FY09.'' ''
The TIV of new vehicles in Malaysia for FY10 breached the all-time high of 605,156 units or a 12.7% gain from 536,905 units in FY09. Nissan sales command a 5.5% market share of TIV.
Nissan's FY10 sales volume swelled by 10.6% to 34,701 units backed by increased growth from its Grand Livina (+15%'' year-on-year), Sylphy (+60%'' y-o-y)'' Navara (+158% y-o-y) and Urvan (+100% y-o-y). In addition, three new models were introduced ' the 2WD Navarra pick-up, X-Trail and the CKD Teana.
To recap, Teana was launched on Nov 23 with an introductory price of RM138,000 on the 2.0L version. Teana triggered high interest in the D-segment market, competing with the Toyota Camry and Honda Accord. From the launch until January, a total of 2,647 Teana units had been booked, with confirmed sales of 1,612 units (Nov 2010-Jan 2011). However, we note that bulk of the sales contribution of Teana will only be realised in FY11.
Tan Chong's capex for FY11F/13F is budgeted at about RM500 million ' RM700 million and caters for: (i)refurbishment of the Shah Alam plant for export; (ii) construction and operation of the Danang plant in Vietnam; (iii) expansion of its branch'' network, especially in Johor; and (iv)'' investments in manufacturing capabilities to increase local content. We have embedded our FY11F/12F capex forecast of about RM100 million to RM200 million respectively.
Management is optimistic about'' its FY11 prospects and expects earnings to be driven by the successful launch of the Teana, the upcoming seven new models (including facelifts and completely built-up [CBU] as well as the continued'' strengthening of the ringgit. We assume that every 1% increase in the ringgit will lift earnings estimates by 2% to 3%. In addition, Tan Chong's long-run expansion via regional initiatives ' Indochina strategy and its intention to capture the mass market volume, could offer huge upside to earnings and achieve economies of scale. Currently, Tan Chong expects a'' total sales volume of its Indochina strategy for FY11F of 2,425'' units, or a 340.1% gain from 551 units in FY10. ''
The main risk factor is a slump in sales due to the threat of rising interest rates that would dampen'' the overall sales target.
We have increased our net profit forecast for FY11F by 21.5% in view of the 6% to 8% sales volume upgrade and 1% to 1.5% increase in operating margins. This is on the back of a stronger ringgit,'' better product mix and improving economies of scale.
Based on the revision of our earnings forecast, we upgrade our recommendation to 'buy''' from 'sell' as the stock offers more than 15% upside potential. Our target price is now RM5.60 (an increase from RM4.60 previously) based on a FY11F PER of 12 times. The multiple is about 30% higher than the sector's average 2011 PER of nine times. We believe the premium is justified due to its more aggressive expansion plans, including a change in strategy that now involves regional markets. ' MIDF Research, Feb 24
This article appeared in The Edge Financial Daily, February 25, 2011.
Company Name: TAN CHONG MOTOR HOLDINGS BHD
Research House: MIDF
Tan Chong Motor Holdings Bhd
(Feb 24, RM4.90)
Upgrade to buy at RM4.90 with revised target price RM5.60 (from RM4.60): Tan Chong's FY10 net profit of RM229.7 million came within ours but was slightly below consensus expectations, making up 94.6% and 88.4% of the full-year forecasts'' respectively. Tan Chong declared a final gross dividend of six sen per share, bringing total gross dividends of 12 sen per share and yield of 2.2% for FY10.
For FY10, net profit surged by 49.8% on the back of a 22.7% increase in revenue to RM3.51 billion. The positive performance was due to: (i) stronger total industry volume (TIV) sales contribution especially in 1HFY10; (ii) transition from higher commercial vehicle sales mix to stronger passenger models which accounted 76% of total sales in FY10 from 73.8% in FY09; (iii) lower imported costs due to stronger ringgit; and (iv) low base factor of FY09.'' ''
The TIV of new vehicles in Malaysia for FY10 breached the all-time high of 605,156 units or a 12.7% gain from 536,905 units in FY09. Nissan sales command a 5.5% market share of TIV.
Nissan's FY10 sales volume swelled by 10.6% to 34,701 units backed by increased growth from its Grand Livina (+15%'' year-on-year), Sylphy (+60%'' y-o-y)'' Navara (+158% y-o-y) and Urvan (+100% y-o-y). In addition, three new models were introduced ' the 2WD Navarra pick-up, X-Trail and the CKD Teana.
To recap, Teana was launched on Nov 23 with an introductory price of RM138,000 on the 2.0L version. Teana triggered high interest in the D-segment market, competing with the Toyota Camry and Honda Accord. From the launch until January, a total of 2,647 Teana units had been booked, with confirmed sales of 1,612 units (Nov 2010-Jan 2011). However, we note that bulk of the sales contribution of Teana will only be realised in FY11.
Tan Chong's capex for FY11F/13F is budgeted at about RM500 million ' RM700 million and caters for: (i)refurbishment of the Shah Alam plant for export; (ii) construction and operation of the Danang plant in Vietnam; (iii) expansion of its branch'' network, especially in Johor; and (iv)'' investments in manufacturing capabilities to increase local content. We have embedded our FY11F/12F capex forecast of about RM100 million to RM200 million respectively.
Management is optimistic about'' its FY11 prospects and expects earnings to be driven by the successful launch of the Teana, the upcoming seven new models (including facelifts and completely built-up [CBU] as well as the continued'' strengthening of the ringgit. We assume that every 1% increase in the ringgit will lift earnings estimates by 2% to 3%. In addition, Tan Chong's long-run expansion via regional initiatives ' Indochina strategy and its intention to capture the mass market volume, could offer huge upside to earnings and achieve economies of scale. Currently, Tan Chong expects a'' total sales volume of its Indochina strategy for FY11F of 2,425'' units, or a 340.1% gain from 551 units in FY10. ''
The main risk factor is a slump in sales due to the threat of rising interest rates that would dampen'' the overall sales target.
We have increased our net profit forecast for FY11F by 21.5% in view of the 6% to 8% sales volume upgrade and 1% to 1.5% increase in operating margins. This is on the back of a stronger ringgit,'' better product mix and improving economies of scale.
Based on the revision of our earnings forecast, we upgrade our recommendation to 'buy''' from 'sell' as the stock offers more than 15% upside potential. Our target price is now RM5.60 (an increase from RM4.60 previously) based on a FY11F PER of 12 times. The multiple is about 30% higher than the sector's average 2011 PER of nine times. We believe the premium is justified due to its more aggressive expansion plans, including a change in strategy that now involves regional markets. ' MIDF Research, Feb 24
This article appeared in The Edge Financial Daily, February 25, 2011.
No comments:
Post a Comment