Prospects remain unexciting for Tan Chong Motor

KUCHING: The lack of new launches and lacklustre car sales continues to cast a shadow over Tan Chong Motor Holdings Bhd’s (Tan Chong Motor) prospects.

This comes as the group declared a core profit of RM5 million for the third quarter of financial year 2022 (3QFY22), bringing its core profit for the first nine months (9MFy22) to RM6.7 million – missing analysts’ expectations.

“This was mainly on higherthan-expected costs, partially due to the strengthening of the US dollar-ringgit in 3Q22,” commented the team at RHB Investment Bank Bhd (RHB Research).

Tan Chong Motor was still impacted by supply chain issues, the research house said, as sales fell 10 per cent quarter on quarter (q-o-q) due to Tan Chong Motor’s continued components shortage and lack of completely built-up supplies, as the automaker continued to face supply issues in Malaysia and Vietnam throughout 3Q22.

“As of end August, Tan Chong Motor had sufficient orders to last until the year’s end, further suggesting that supply issues may be at fault.

“Its profit before tax fell at a steeper 26 per cent q-o-q, which management attributed to the unfavourable sales mix and strengthening US dollar-ringgit. However, due to a significantly lower tax expense, net profit inched up 2.3 per cent q-o-q.”

While China’s eventual reopening will largely alleviate the supply chain issues currently impacting Tan Chong Motor’s Malaysia and Vietnam vehicle sales, RHB Research believed the limited new model and facelift launches, plus lack of visibility of future launches, continue to cast a shadow over its prospects.

“It sold only about 1,000 units (Nissan and Renault) per month in September and October in Malaysia -- a far cry from 2019’s monthly average of 1,900 units. Without new launches, the outlook remains unexciting.”

This was echoed by Hong Leong Investment Bank Bhd (HLIB Research) who expected sales to improve in 4QFY22, but may remain weak in FY23, given the ending of the sales and services tax exemptions.

“Management is committed to avoid direct pricing competitions with other OEMs and remains dependent on its core models: Almera, Serena Hybrid and Navara. Nissan is expected to introduce the new X-Trail model and potential a new smaller SUV sibling Kicks.

“Management has also continued its EV program through its owned GoEV sharing and subscription platform. Within Indochina market, we expect sales improvement -- especially Vietnam -- in tandem with the anticipated recovery of economic activities and recovery of supply chain.

“However, the US dollar appreciation, higher logistic costs and material costs may continue to affect TCM’s margins in coming quarters.”