business

Tan Chong Motors to see earnings improvement this year amid stiff domestic competition

KUALA LUMPUR: Tan Chong Motors Holdings Bhd (TCM) is expected to improve its earnings this year, but concern over the stiff competitive domestic market environment is still on the horizon, Hong Leong Investment Bank Bhd (HLIB Research) said.

The bank-backed research firm said that the strong appreciation of the US dollar against the ringgit also risks the company's financial performance in the near term.

HLIB Research said TCM's Malaysia sales volume in the first half (1H) ended June 30, 2022, improved 28.7 per cent year-on-year (YoY), driven by production and delivery ramp-up during the period, while its financial services revenue surprisingly dropped by 5.2 per cent YoY.

The company's overall pre-tax earnings contribution improved YoY on the higher vehicle sales volume.

The company recently launched the Serena-S Hybrid facelift in early July and new Tomei accessories for the Almera model in August to stay relevant to the market.

"Currently, inventory is at a low level of RM589 million (lasting around three months) due to a supply shortage from the principal, while new orders are still relatively encouraging post the end of sales and service tax (SST) exemption measures.

"However, we remain cautious on the company's domestic market outlook, due to the ongoing stiff competition for the various segments in the market," it said in a note today.

HLIB Research said TCM recorded a disappointing net pre-tax loss of -RM17.4 million for 1H FY22, mainly due to lower-than-expected margins and higher-than-expected tax expenses.

Nevertheless, it said TCM's 1H FY22 was still an improvement YoY, mainly driven by higher sales volume and margins of Malaysia operation, while Indochina operation was still relatively flattish YoY in line with the flattish sales volume.

Besides, there was a litigation provision of RM17.4 million for Cambodia operations in 1H FY22.

The overall market in Laos, Cambodia and Myanmar saw sales volume growth year to date (YTD) and revenue growth of +44.6 per cent YTD, following the re-opening of the countries' economies.

"However overall core pre-tax earnings were lowered YTD mainly dragged down by unrealised foreign exchange losses.

"Management is taking a cautious stance in these countries due to the deteriorated consumer sentiment in Laos and Cambodia as well as the uncertainty in politics in Myanmar," it added.

HLIB has maintained its 'Sell' call on TCM, with an unchanged target price of 75 sen a share.

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