KUALA LUMPUR: Hong Leong Investment Bank Bhd (HLIB Research) expects Tan Chong Motor Holdings Bhd's performance to remain dragged by ongoing stiff market competition in Malaysia.
"We remain cautious on the group's domestic market outlook, due to the ongoing stiff competition for the various segments in the market as both national marques and non-national OEMs introduce new attractive models.
"In Vietnam, we expect sales to deteriorate following the termination of distributorship for MG models effective June 30, 2023, which will further prolong the losses in the market.
"Nevertheless, management highlighted the introduction of locally assembled light truck licensed by SAIC-GM-Wuling Automobile Co Ltd. – N300P in 4QFY23 to rebuild Vietnam performance in the fourth quarter of financial year 2023 (4Q23)," it said in a note today.
HLIB Research noted that other markets, such as Laos, Cambodia, and Myanmar, remain weak due to deteriorated consumer sentiment and political uncertainty.
It said continuous US dollar appreciation, higher logistic costs, and material costs will also continue to affect Tan Chong Motor's margins in the second half of financial year 2023 (2H23). Tan Chong Motor reported core loss after tax and minority interests (LATMI) of RM46 million in 2Q23 and RM55.8 million for 1H23.
HLIB Research said the result was below expectations, which has already exceeded its FY23 loss forecast of RM35 million and consensus of RM31.2 million.
It also cut its earnings forecasts for TCM, now expecting it to post a bigger loss of RM98.5 million from RM35 million loss for its FY2023, RM47.2 million loss for the FY2024 (from -RM30.2 million previously) and a profit of RM43.4 million for the FY2025 (from RM45 million previously).
HLIB Research maintained "Sell" on Tan Chong Motor with a lower target price of 66 sen.
"We are still relatively concerned on continued weak sales volume due to stiff competition," it said.