Stock Name: TCHONG
Company Name: TAN CHONG MOTOR HOLDINGS BHD
Tan Chong Motor Holdings Bhd
(Aug 10, RM5.08)
Maintain outperform at RM4.70 with revised fair value of RM5.50 (from RM6.15): With combined Nissan and Renault vehicle sales in 2Q11 having declined some 16.8% quarter-on-quarter (q-o-q) and 10.8% year-on-year following the March 11 earthquake and tsunami in Japan, weak earnings in the quarter should not come as a surprise to the market. There was also some impact on new vehicle sales from the implementation of the amendments to the Hire Purchase Act on June 15.
We are anticipating 2Q11 earnings per share at between 8.5 to nine sen excluding exceptional items. Given that the component supply situation from Japan has normalised, while the authorities are expected to streamline the HP Act to eliminate bottlenecks, the outlook is for an improved 2H11. Accordingly, we believe tepid 2Q11 earnings are already in the price.
Tan Chong's high inventory levels have paid off handsomely with Nissan sales the least affected among the major non-national marques. The q-o-q earnings performance should also be softened by the RM5.4 million foreign exchange translation loss relating to Nissan Vietnam Ltd incurred in 1Q11.
The new Vanette is scheduled for launch by end-2011, which could make a significant contribution to volumes. Tan Chong is also on track to launch a B-segment model in September 2012 that we believe will be a game changer for the company. This model will compete with the Toyota Vios and Honda City.
The key risks include: (i) a weaker economy affecting car sales; (ii) unfavourable forex trends; and (iii) heightened competition. Irrational price competition emanating from efforts to meet sales targets could result in heavy price discounting and higher marketing costs towards end-2011.
We have trimmed out 2011 to 2013 forecasts by 8.2%, 5.9% and 7.6% after factoring in higher advertising and promotional costs and dialling back our unit sales assumptions.
We are lowering our fair value to RM5.50 (from RM6.15) after factoring in a lower FY12 target price-earnings ratio (PER) of 10 times (from 10.5 times). We reiterate our 'outperform' call on Tan Chong. We are lowering our target valuation to reflect lower peer valuations and higher market risk premium. We believe Tan Chong will benefit from relatively resilient domestic consumption and is well positioned to gain market share from its forthcoming new product launches. Valuations are undemanding with prospective FY12 PER at 8.5 times relative to 2010 to 2013 net profit compound annual growth rate of 25.8%. ' RHB Research, Aug 10
This article appeared in The Edge Financial Daily, August 11, 2011.
Company Name: TAN CHONG MOTOR HOLDINGS BHD
| Research House: RHB | Price Call: BUY | Target Price: 5.50 |
Tan Chong Motor Holdings Bhd
(Aug 10, RM5.08)
Maintain outperform at RM4.70 with revised fair value of RM5.50 (from RM6.15): With combined Nissan and Renault vehicle sales in 2Q11 having declined some 16.8% quarter-on-quarter (q-o-q) and 10.8% year-on-year following the March 11 earthquake and tsunami in Japan, weak earnings in the quarter should not come as a surprise to the market. There was also some impact on new vehicle sales from the implementation of the amendments to the Hire Purchase Act on June 15.
We are anticipating 2Q11 earnings per share at between 8.5 to nine sen excluding exceptional items. Given that the component supply situation from Japan has normalised, while the authorities are expected to streamline the HP Act to eliminate bottlenecks, the outlook is for an improved 2H11. Accordingly, we believe tepid 2Q11 earnings are already in the price.
Tan Chong's high inventory levels have paid off handsomely with Nissan sales the least affected among the major non-national marques. The q-o-q earnings performance should also be softened by the RM5.4 million foreign exchange translation loss relating to Nissan Vietnam Ltd incurred in 1Q11.
The new Vanette is scheduled for launch by end-2011, which could make a significant contribution to volumes. Tan Chong is also on track to launch a B-segment model in September 2012 that we believe will be a game changer for the company. This model will compete with the Toyota Vios and Honda City.
The key risks include: (i) a weaker economy affecting car sales; (ii) unfavourable forex trends; and (iii) heightened competition. Irrational price competition emanating from efforts to meet sales targets could result in heavy price discounting and higher marketing costs towards end-2011.
We have trimmed out 2011 to 2013 forecasts by 8.2%, 5.9% and 7.6% after factoring in higher advertising and promotional costs and dialling back our unit sales assumptions.
We are lowering our fair value to RM5.50 (from RM6.15) after factoring in a lower FY12 target price-earnings ratio (PER) of 10 times (from 10.5 times). We reiterate our 'outperform' call on Tan Chong. We are lowering our target valuation to reflect lower peer valuations and higher market risk premium. We believe Tan Chong will benefit from relatively resilient domestic consumption and is well positioned to gain market share from its forthcoming new product launches. Valuations are undemanding with prospective FY12 PER at 8.5 times relative to 2010 to 2013 net profit compound annual growth rate of 25.8%. ' RHB Research, Aug 10
This article appeared in The Edge Financial Daily, August 11, 2011.
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