WITH the continued lack of growth catalysts, analysts remain cautious of Tan Chong Motor Holdings Bhd’s financial year 2017 (FY17) earnings prospects.
The company saw its worst quarterly performance in four years in its first quarter (Q1) financial result, achieving only a mere 6,000 units of sales.
“We are expecting another weak quarter for Tan Chong, which will last until the end of the year as the company lacks a solid growth strategy. We are negative on the stock,” an analyst attached to a local research house told NST Business yesterday.
The research firm said sales had been very poor for the group and the problems was expected to continue for the rest of the year as Tan Chong would not be bringing any new models into the market until next year.
“The company is left with no options to push for sales, and has to impose heavy discounts on the old stock that it currently has,” said the analyst.
The analyst estimates that Tan Chong will post a core net loss of RM40 million in FY17 from a net profit of RM42 million previously.
For FY18 and FY19, the analyst slashed Tan Chong’s core earnings by 11 per cent to 60 per cent.
“We expect the trend of losses (by Tan Chong) to continue.”
Meanwhile, JF Apex Securities Bhd, in its latest note, expects the group to continues facing a difficult operating environment in 2017 due to current headwinds in relation to unfavourable foreign exchange, stringent hire purchase approvals and soft consumer sentiment towards big ticket items.
Earnings contribution from its penetration in the Indochina market remains a long-term story as the group is currently ramping up the utilisation of its plants.
JF Apex slashed its FY17 and FY18 earnings estimates by 32 per cent and three per cent, respectively, to account for the lower-than expected margins.
“We have also lowered our car sales assumption significantly due to stringent hire purchase approvals and weak consumer sentiment, coupled with the ever-competitive local automotive scene,” it said.
JF Apex maintained a “hold” call on Tan Chong, with an unchanged target price of RM1.76.
Out of the 10 research houses that covered the stock, only Maybank Kim Eng had a “buy” call on Tan Chong, with a target price of RM2.20.
For the first quarter, Tan Chong’s net loss has narrowed to RM35.32 million from a net loss of RM37.21 million recorded in the same quarter a year ago.
Revenue dropped 29.7 per cent to RM995.65 million from RM1.42 billion.
JF Apex said the group’s Q1 results lagged behind full year net earnings expectation of RM19.7 million and market consensus of a net loss of RM14.1 million.
“The lackluster performance was mainly affected by lower car sales amid poor consumer sentiment and higher-than-expected costs,” it said.