Analyst optimistic about Tan Chong's IndoChina operations and new model launches

KUALA LUMPUR: RHB Research seems optimistic on Tan Chong Motor Holdings Bhd’s (Tan Chong) improvement in its Indochina operations with the introduction of several new models in the domestic market.

RHB Research said Tan Chong’s Indochina operations continue to show good progress with increasing sales volume, while it considers introducing new models to refresh its product offerings.

“The Indochina operations have started to show tangible improvements. Further traction would help Tan Chong diversify its earnings away from the competitive and saturated domestic market. Potential new model launches are another earnings driver,” it said in a research report recently.

It added that the Indochina business registered higher sales volume year-on-year with Vietnam sales growing 1.0 per cent, thanks to consistent sales of the Nissan Sunny.

Laos and Cambodia sales volumes also grew 56 per cent and 64 per cent to 218 units and 176 units after the introduction of the Nissan Terra and Nissan Navara Premium Plus at the end of 2018 while Myanmar sold 432 units in the first-quarter of this year.

RHB Research said Tan Chong’s potential new contract assembly at its Vietnam plant in Danang would support future growth.

“Tan Chong is in the midst of increasing its capacity in Myanmar as production there is operating at a full run-rate of 1,300-1,400 units per annum. The first phase of expansion to increase capacity to 5,000 units pa should be completed in second half of 2019.”

It said Tan Chong was studying the viability of bringing the Nissan Almera, Nissan Kicks and Nissan Sylphy to the Malaysian market.

If it materialises, it said Tan Chong might probably starting with the Almera, followed by Kicks and Sylphy from 2020 onwards.

“Its strategy to continue to prioritise profitability over sales volumes would influence the pricing and marketing strategies of the new models.

“It will be launching the Nissan Leaf EV in 2H19 but sales volume will likely be immaterial. The new X-trail facelift is seeing stiff competition from Proton X70 and sales could fall short of expectations.

It sold 5,873 units of the previous X-trail in 2018, about 20 per cent of total Nissan/Renault sales.”

RHB Research also cut Tan Chong’s target price to RM1.85 from RM2.00 on the lower financial year ending December 31, 2019 earnings, based on unchanged target earnings per share of 11 times due to lack of product pipeline visibility.

“We trim our 2019-2021 forecasts by 6.5 per cent and 6.7 per cent after reducing our sales volume assumptions, expecting stiff competition especially from national brands.

“The deterioration of the ringgit against the US dollar and delays of new model launches could also impact profitability.”

It said the toned down earnings forecasts slightly to reflect stiff competition, especially from the national brands with foreign exchange remains a key risk.

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