JF Apex keeps Tan Chong ‘buy’ call on sustained growth prospect

KUALA LUMPUR: A research house believes that Tan Chong Motor Holdings Bhd will focus on selling high-margin models and improve sales and after-sales services in its Malaysian and Indochinese markets.

JF Apex Securities Bhd said in a recent report this was despite the challenging business prospects amid stiff competition among carmakers, subdued consumer sentiment and lower loan rate approval.

Tan Chong posted a net profit of RM22.1 million in the first quarter, down 81.2 per cent quarter-on-quarter.

Revenue stood at RM1.1 billion, which was 7.4 per cent lower quarter-to-quarter but 4.4 per cent higher year-on-year.

JF Apex said the group’s firstquarter results were within its 2019 financial year core profit expectations at 20.8 per cent, and higher than market expectations of 19.8 per cent.

The encouraging performance was due to greater sales mix arising from new launches in Malaysia and overseas.

JF Apex said the lower revenue and pre-tax profit were due to lower Nissan car sales domestically during the quarter.

“Domestic Nissan car sales contracted 34.4 per cent quarteron-quarter because there were no new launches during this period, as well as stiff competition among carmakers.”

Nissan’s domestic market share shrank to 3.9 per cent in the first quarter from 5.5 per cent in the fourth quarter of last year.

“The group is expected to come out with new models next year, such as the new Nissan Almera, Nissan Kicks and new Nissan Sylphy.”

JF Apex has maintained a “buy” call on Tan Chong with an unchanged target price of RM1.76.

It believes the group is able to sustain its growth momentum and, hence, is confident that earnings recovery is well underway.