Analysts surprised by Tan Chong’s JV termination
KUALA LUMPUR: Tan Chong Motor Holdings Bhd’s (Tan Chong) notice of termination of the Joint Venture (JV) Agreement from Nissan Motor Co, Ltd (NML) has been met with surprised reactions by analysts who were taken aback by the announcement.
Tan Chong’s board of directors recently announced in a filing on Bursa Malaysia that whollyowned subsidiary ETCM (V) Pte Ltd (ETCMV) had received from NML a notice of termination of the JV Agreement dated September 22, 2010 between ETCMV and NML pursuant to which ETCMV and NML have respective shareholdings of 74 per cent and 26 per cent in the JV company, Nissan Vietnam Co, Ltd (NVL).
“Whilst we are taken aback by the announcement, we find several peculiarities,” the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) remarked in its corporate update on Tan Chong.
According to MIDF Research, NML is still launching new completely built-up (CBU) models such as Nissan Terra despite the termination and CBUs account for half of Nissan total industry volume (TIV) in Vietnam which is a huge loss if there is no counter measure.
Additionally, the research arm pointed out that CBU operations are a lot more straightforward than completely knocked-down (CKD) as it is essentially just a trading operation (not involved in retailing).
“Whether this is Nissan’s move to focus on CKD models in-line with the Vietnam Government’s direction, remains to be seen.
“Notably, in Malaysia too, NML does not have direct operations other than via Tan Chong.”
The research arm also noted that following Decree 116, other carmakers have proposed to expand CKD operations. For example, Toyota Vietnam is expanding local CKD production capacity from 50,000 to 90,000 per annum by 2023.
In spite of this latest development, MIDF Research maintained its contrarian ‘buy’ on Tan Chong at an unchanged target price of RM2.10 per share.
“Earnings turnaround driven mainly by the Malaysian operations remains intact, while operational losses will reduce from the elimination of NVL losses.”