Stock Name: TCHONG
Company Name: TAN CHONG MOTOR HOLDINGS BHD
Tan Chong Motor Holdings Bhd
(June 27, RM4.69)
Upgrade to outperform at RM4.68 with revised fair value RM6.15 (from RM4.90): Recent reports indicate that vehicle and component production in Japan has begun to normalise sooner than expected. Domestic assemblers of Japanese marques have already announced plans to resume normal production levels that should be achieved by August at the latest.
Tan Chong is scheduled to launch a B segment model in September 2012 that we believe will be a game changer for the company. Nissan does not currently have a competitive offering in the segment to compete with Toyota's Vios and Honda's City. The vehicle is believed to be similar to the all-new sedan model that was originally unveiled in December 2010 at the 8th China International Automobile Exhibition in Guanzhou and marketed as the Nissan Sunny in China.
The new Vanette is also scheduled for launch by end-2011 that could make a significant contribution to volumes. The previous model saw sales of 4,859 units in 2009 and 6,822 units at its recent peak in 2006. Tan Chong is also expected to achieve greater sales traction in Indochina markets where there could be upside from our conservative estimates.
The macro environment going into 2012 is looking favourable for consumer discretionary spending. RHB Research Institute's economics team is forecasting GDP growth to accelerate to 5.5% in 2012 from 5% in 2011, while consumption spending will also pick up pace to +6.5% next year from +5.8% in 2011 on the back of rising incomes and consumer confidence. Interest rates are also expected to remain relatively benign while financing remains easily available.
Key risks include: (i) lower car sales; (ii) unfavourable forex trends; (iii) higher interest rates; and (iv) prolonged supply chain disruption.
Our forecasts remain unchanged but we are upgrading our call on Tan Chong to 'outperform' (from 'market perform'). In our opinion, Tan Chong has a compelling growth story, with earnings at an inflection point. Valuations are undemanding with prospective FY12 price-earnings ratio (PER) at eight times relative to 2010/13 net profit compound annual growth rate of 29.2%. Our fair value for the stock is RM6.15 (from RM4.90) derived from applying a 10.5 times PER (unchanged) to FY12 earnings per share (rolled over from FY11). Overhanging negative sentiment on the sector should diminish as production and sales data normalise in the months ahead and helped by the market shifting its focus to prospects in 2012. ' RHB Research, June 27
This article appeared in The Edge Financial Daily, June 28, 2011.
Company Name: TAN CHONG MOTOR HOLDINGS BHD
| Research House: RHB | Price Call: BUY | Target Price: 6.15 |
Tan Chong Motor Holdings Bhd
(June 27, RM4.69)
Upgrade to outperform at RM4.68 with revised fair value RM6.15 (from RM4.90): Recent reports indicate that vehicle and component production in Japan has begun to normalise sooner than expected. Domestic assemblers of Japanese marques have already announced plans to resume normal production levels that should be achieved by August at the latest.
Tan Chong is scheduled to launch a B segment model in September 2012 that we believe will be a game changer for the company. Nissan does not currently have a competitive offering in the segment to compete with Toyota's Vios and Honda's City. The vehicle is believed to be similar to the all-new sedan model that was originally unveiled in December 2010 at the 8th China International Automobile Exhibition in Guanzhou and marketed as the Nissan Sunny in China.
The new Vanette is also scheduled for launch by end-2011 that could make a significant contribution to volumes. The previous model saw sales of 4,859 units in 2009 and 6,822 units at its recent peak in 2006. Tan Chong is also expected to achieve greater sales traction in Indochina markets where there could be upside from our conservative estimates.
The macro environment going into 2012 is looking favourable for consumer discretionary spending. RHB Research Institute's economics team is forecasting GDP growth to accelerate to 5.5% in 2012 from 5% in 2011, while consumption spending will also pick up pace to +6.5% next year from +5.8% in 2011 on the back of rising incomes and consumer confidence. Interest rates are also expected to remain relatively benign while financing remains easily available.
Key risks include: (i) lower car sales; (ii) unfavourable forex trends; (iii) higher interest rates; and (iv) prolonged supply chain disruption.
Our forecasts remain unchanged but we are upgrading our call on Tan Chong to 'outperform' (from 'market perform'). In our opinion, Tan Chong has a compelling growth story, with earnings at an inflection point. Valuations are undemanding with prospective FY12 price-earnings ratio (PER) at eight times relative to 2010/13 net profit compound annual growth rate of 29.2%. Our fair value for the stock is RM6.15 (from RM4.90) derived from applying a 10.5 times PER (unchanged) to FY12 earnings per share (rolled over from FY11). Overhanging negative sentiment on the sector should diminish as production and sales data normalise in the months ahead and helped by the market shifting its focus to prospects in 2012. ' RHB Research, June 27
This article appeared in The Edge Financial Daily, June 28, 2011.
No comments:
Post a Comment