‘Reduce’ rating on Tan Chong Motor but with higher RM1.01 target price

KUALA LUMPUR: CGS-CIMB Research expects Tan Chong Motor Holdings Bhd to return to profitability in the financial year ending Dec 31, to be driven by a recovery in sales volume and multiple new launches.

In addition to the Nissan Almera launched on Nov 20 last year, the research firm noted that Tan Chong Motor was also looking to introduce the facelifted Nissan Navara pick-up truck on April 21 and a new compact Bsegment sport utility vehicle.

However, CGS-CIMB said Tan Chong Motor faced stiff competition from other Japanese models such as the Honda City and Toyota Vios.

Both models are competing in the B-segment sedan market.

“In addition, we see increasing competition from national brands, especially the new Proton X50 and Perodua Ativa.

“Overall, we expect the stiff competition to act as a barrier to the sales volume growth recovery this year.

“Apart from that, we expect minimal improvement from its overseas operations in its financial year 2021, given the ongoing Covid-19 pandemic and the uncertainty due to the political situation in Myanmar,” said CGSCIMB.

The research firm raised its financial years 2021 and 2022 earnings per share forecast on Tan Chong Motor by nine to 16 per cent to reflect better margins from an improving sales mix in Malaysia.

“We retain our ‘reduce’ rating on the stock, with a slightly higher RM1.01 target price.

“We see stronger earnings from its overseas operations and an appreciation of the ringgit versus the US dollar as potential upside risks to our ‘reduce’ call, while widening losses in its overseas operations and delays in new launches are key de-rating catalysts for the stock,” it added.

Tan Chong Motor’s revenue fell 22.5 per cent quarter-on-quarter in the fourth quarter of last year due to fewer vehicles sold in Malaysia, Vietnam, Myanmar, Laos and Cambodia.