Tan Chong Motor upgraded to hold as risk- reward now balanced

Analysts at AmInvestment Bank Bhd (AmInvestment Bank) upgraded their call for Tan Chong Motors Bhd (TCM) from underweight to hold as they believe that the stock’s riskreward is now balanced.

In a company report, the analyst guided that since releasing its fourth quarter of 2023 (4Q23) results a month ago; TCM’s share price has plunged by 12 per cent and declined by 14 per cent year to date (YTD).

“Due to the share price decline, the risk-reward is now balanced, with only an 8 per cent gap to our fair value of RM0.80.

“Hence, the upgrade to our recommendation,” the research arm explained who added that its fair value is derived by pegging to a price book valuation (PBV) of 0.2-fold and an in-house neutral 3-star ESG rating.

Despite the more optimistic call, the analyst guided that the risks to their new call includes unfavourable foreign exchange (forex) rates that may negatively impact TCM’s operating costs and slowerthan-expected rollout of new car models which will further leave TCM behind in the all new model race.

Recall that TCM’s Nissan has seen slowing sales and lowering market share in the past few years due to slow rollout of new car models while other marquees have engaged in aggressive push out of all new models and facelift models.

The analyst pointed out that based on their own visits to Nissan showrooms, they have noted that its new Almera Black edition has been positively received with crowds of customers lining to test drive while its stock remains readily available with a delivery period of just 7 to 10 days upon financing approval.

However, apart from this new Almera Black edition, there are no other new models in the pipeline compared to other marquees who are already displaying 2 to 3 new models or facelift editions.

Additionally, the analyst also finds it perplexing that TCM has not introduced any promotional ‘freebies’ or ‘extra’ discounts.

Which may lower their competitiveness as they note other marquees they visited were pushing heavy Hari Raya promotions.

On a separate note, AmInvestment bank reports that TCM’s share buyback has recommenced with a total purchased of 45,000 shares in the past month.

“This purchase is part of its approval on June 1, 2023 to buy back up to 10 per cent of its issued shares.

“However, we note the current pace of share buyback is not convincing with aggregate purchase of less than 0.2 per cent since the approval of the program,” they shared.