Tan Chong’s new automotive hub in Bagan Datuk garners negative reactions

KOTA KINABALU: Tan Chong Motor Holdings Bhd’s (Tan Chong) new automotive hub in Bagan Datuk has garnered negative reactions from analysts.

In a statement on Bursa Malaysia, the group revealed that the longterm investment accruable to Tan Chong Automotive & Commercial Vehicle Hub is estimated to be RM500 million.

“Located on a piece of freehold land spanning an area of 338 acres in Bagan Datuk, spin-offs from this investment will include the creation of new jobs, the influx of new pertinent investments and the spurring of Bagan Datuk’s economic growth,” Tan Chong said.

“The group expects to commence with a total outlay of RM100 million investments into this project, which will be channeled towards land acquisition and the construction of a bus and truck plant in Phase 1.”

The group added that once completed, this new plant will cater to the production expansion needs of the local and export markets.

However, this latest development from Tan Chong has garnered negative views from the research arm of Hong Leong Investment Bank Bhd (HLIB Research).

“We are negative on the announcement as the group’s priority is to recover local Nissan sales and to improve its utilisation rate of their Segambut plant,” HLIB Research said.

“Nissan domestic sales fell from the peak of 42,200 units in 2015 to 27,200 units in 2017. Year to date (YTD), its market share has slipped further to 3.9 per cent from 4.7 per cent in 2017.

“Nissan sales was at 5,300 units in YTD 2018 and 2,000 units in March 2018. Tan Chong currently sees total utilisation stood below 50 per cent of its Segambut plant.”

Despite Tan Chong not disclosing the source of funding for the proposed investment, HLIB Research believed that the group will raise the fund via bank borrowing.

The research arm noted that based on the initial investment of RM100 million, the group’s net gearing ratio may increase to 55.8 per cent from 52.2 per cent in financial year 2017 (FY17).