Tan Chong hard hit by Covid-19 in 1QFY20
KUALA LUMPUR: It was a weak start to Tan Chong Motor Holdings Bhd’s (Tan Chong) financial year 2020 (FY20) as the Covid-19 hampered its automotive division.
Tan Chong slipped into the red with a core net loss of RM25 million for its first quarter (1Q) of FY20. This is compared to consensus’ FY20F net profit expectation of RM40 million.
As MIDF Amanah Investment Bank Bhd (MIDF Research) expect Tan Chong to register deeper losses in 2Q20 before a recovery in 2H20, the firm deemed the results in-line with its estimates.
“Dragged by lockdown measures, Tan Chong’s group revenue fell by 32 per cent year on year (y-o-y), leading Tan Chong to slip into the red in 1Q20 relative to a net profit of RM10 million in the same period last year,” it said yesterday.
“This was mainly due to lower sales volume by 47 per cent y-oy) for autos (dragged by the MCO which commenced on March 18) and lower revenues for its hire purchase division given a reduction in loan book size.”
MIDF Research went on to note that Tan Chong stands to gain from an upcoming new model launch in the second half (2H) of the year, but it will likely expereince near-term drag from run-out.
“The new N18 Almera (Bsegment sedan), which was launched in Thailand in November 2019, is scheduled to be launched here in 2H,” it said. “It should be noted that the current generation Almera was launched in 2012 – we presume negotiations and kit pricing would have taken place during the 2011-2012 period, when the ringgit was at around RM3.20 per US dollar levels.
“Given significant depreciation of the Ringgit now (which is at RM4.30 levels), the current generation Almera would have turned into a barely profitable model.
“Nonetheless, costing for the new Almera is likely to have been negotiated closer to current forex levels, which should improve margins generated from the model; this is reflected in the sharp earnings improvement in FY21F.
“In the near-term, however, run-out of the current generation Almera might drag earnings in the next one or two quarters.”
Kenanga Investment Bank Bhd (Kenanga Research) went on to note that intense competition and insufficient new large volume launches have cost Tan Chong its market share which is further dampened by losses from heavy discounting activities and an under-utilised Vietnam Danang plant.
“The Vietnam CBU agreement with its principal will expire on September 30, 2020, but could be cushioned by the recent overseas Distribution Agreement with SAIC Motor International Co Ltd as the sole and exclusive importer and distributor for the sale of CBU MG brand vehicles and aftersales spare parts, and aftersales services in Vietnam,” it said.
“On the other hand, Tan Chong will be launching the new Nissan Almera, and depending on market demand, the Nissan Kicks (B-segment crossover), and all-new Nissan Sylphy.
“Despite new launches ahead, we expect Tan Chong’s efforts to gain market share to continue being challenged by competitors especially from the national car segment.”
Dragged by lockdown measures, Tan Chong’s group revenue fell by 32 per cent year on year (y-o-y), leading Tan Chong to slip into the red in 1Q20 relative to a net profit of RM10 million in the same period last year.
MIDF Amanah Investment Bank Bhd (MIDF Research)