Stock Name: TCHONG
Company Name: TAN CHONG MOTOR HOLDINGS BHD
Tan Chong Motor Holding Bhd
(Sept 22, RM 4.69)
Maintain hold at RM4.10 with target price of RM4.66: We maintain our 'hold' call on Tan Chong Motor Bhd (TCM) with a lower sum-of-parts-derived fair value of RM4.10 per share following an earnings downgrade. Our valuation continues to peg TCM at nine times FY11F earnings.
TCM launched the Nissan Livina X-Gear last week. A crossover model, the Livina X-Gear is introduced as a completely knocked-down model (CKD).
The on the road (OTR) price tag of RM82,800 is cheaper than the existing Grand Livina MPV's RM89,000 (for the 1.6 Auto transmission variant).
While the Livina X-Gear is a refresher, it is ultimately a derivative of the same Grand Livina platform with cosmetic changes and a lower seat capacity. As such, we would not expect the same kind of response as a full model change.
Note that the Grand Livina MPV has already been in the Malaysian market for over three years. Furthermore, the launch of the model coincides with increasing uncertainty in external economies which may be affecting consumer sentiment.
Although the Grand Livina garnered circa 1,200 unit sales per month, management has guided that it expects the Livina X-Gear to generate only 400 to 500 units per month in the first two months before stabilising at 200 to 300. So far, the Livina X-Gear has generated 400 to 500 bookings, but TCM is still facing a shortage of CKD supply for this model; hence, the waiting list is two to three months.
We believe the Livina X-Gear is positioned to steal sales in the light SUV segment (Toyota Rush, Honda CRV) and the hatchback B-segment (Suzuki Swift, Ford Fiesta, Mazda 2, Honda Jazz). However, we note that existing crossovers such as the Suzuki SX4 and VW Cross Polo, which though priced at 9% to 36% premium to the X-Gear only generate a sales volume of 70 to 80 units per month.
While we believe the X-Gear can sell better than competing completely built-up (CBU) crossovers given much lower pricing and Nissan's better after sales service, we conservatively trim our FY11F to 14F projections by 2% to 4% in view of the lower than expected sales target against our prior projection of 1,700 Livina X-Gear sales by year-end. This is exacerbated by the CKD shortage for the model, while annualised 7M11 Nissan total industry volume (TIV) of 34,006 is still 3% short of our ex-Livina X-Gear FY11F projection of 35,220.
Separately, the platform sharing deal between Proton and Nissan is off. This means TCM will not benefit from lower CKD cost for the Nissan B-segment model due for launch at end-FY12F. Proton had originally agreed to underwrite up to 100,000 units of Nissan March's platform, which would have lowered unit costs. The earlier plan also included sharing common parts whereby TCM would have played a role in body stamping and engine parts supply. ' AmResearch, Sept 22
This article appeared in The Edge Financial Daily, September 22, 2011.
Company Name: TAN CHONG MOTOR HOLDINGS BHD
| Research House: AMMB | Price Call: HOLD | Target Price: 4.10 |
Tan Chong Motor Holding Bhd
(Sept 22, RM 4.69)
Maintain hold at RM4.10 with target price of RM4.66: We maintain our 'hold' call on Tan Chong Motor Bhd (TCM) with a lower sum-of-parts-derived fair value of RM4.10 per share following an earnings downgrade. Our valuation continues to peg TCM at nine times FY11F earnings.
TCM launched the Nissan Livina X-Gear last week. A crossover model, the Livina X-Gear is introduced as a completely knocked-down model (CKD).
The on the road (OTR) price tag of RM82,800 is cheaper than the existing Grand Livina MPV's RM89,000 (for the 1.6 Auto transmission variant).
While the Livina X-Gear is a refresher, it is ultimately a derivative of the same Grand Livina platform with cosmetic changes and a lower seat capacity. As such, we would not expect the same kind of response as a full model change.
Note that the Grand Livina MPV has already been in the Malaysian market for over three years. Furthermore, the launch of the model coincides with increasing uncertainty in external economies which may be affecting consumer sentiment.
Although the Grand Livina garnered circa 1,200 unit sales per month, management has guided that it expects the Livina X-Gear to generate only 400 to 500 units per month in the first two months before stabilising at 200 to 300. So far, the Livina X-Gear has generated 400 to 500 bookings, but TCM is still facing a shortage of CKD supply for this model; hence, the waiting list is two to three months.
We believe the Livina X-Gear is positioned to steal sales in the light SUV segment (Toyota Rush, Honda CRV) and the hatchback B-segment (Suzuki Swift, Ford Fiesta, Mazda 2, Honda Jazz). However, we note that existing crossovers such as the Suzuki SX4 and VW Cross Polo, which though priced at 9% to 36% premium to the X-Gear only generate a sales volume of 70 to 80 units per month.
While we believe the X-Gear can sell better than competing completely built-up (CBU) crossovers given much lower pricing and Nissan's better after sales service, we conservatively trim our FY11F to 14F projections by 2% to 4% in view of the lower than expected sales target against our prior projection of 1,700 Livina X-Gear sales by year-end. This is exacerbated by the CKD shortage for the model, while annualised 7M11 Nissan total industry volume (TIV) of 34,006 is still 3% short of our ex-Livina X-Gear FY11F projection of 35,220.
Separately, the platform sharing deal between Proton and Nissan is off. This means TCM will not benefit from lower CKD cost for the Nissan B-segment model due for launch at end-FY12F. Proton had originally agreed to underwrite up to 100,000 units of Nissan March's platform, which would have lowered unit costs. The earlier plan also included sharing common parts whereby TCM would have played a role in body stamping and engine parts supply. ' AmResearch, Sept 22
This article appeared in The Edge Financial Daily, September 22, 2011.
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