KUALA LUMPUR: Tan Chong Motor Holdings Bhd's business profile and domestic automotive market share has continued to decline, with MARC Ratings revising the rating outlook of the company's RM1.5 billion sukuk to negative from stable.
However, MARC affirmed its rating of A+IS on the sukuk.
"The outlook revision is premised on the continued weakening of the group's business profile that has resulted in declining market share in the domestic automotive industry and underperformance in foreign markets.
"Meanwhile, the rating affirmation considers the group's longstanding position in the domestic automotive industry and its healthy liquidity as well as low leverage positions," MARC said.
Tan Chong's domestic automotive market share accounted for 1.4 pe rcent in the first half of 2023 from nearly 3.0 per cent in 2020.
This was largely due to intense competition and comparatively fewer new model launches, and partly to supply chain disruptions.
MARC noted that Tan Chong's distributorship for China-made MG passenger cars in Vietnam was terminated in June thisyear by the principal, SAIC Motor Corp Ltd, China's largest automaker. This stemmed from a change in SAIC's overall business strategy.
The Vietnamese operations contributed to seven per cent to Tan Chong group revenue, of which MG cars accounted for more than 95 per cent of sales annually from 2021 to the first half of 2023.
Domestically, Tan Chong introduced a new version of Nissan Leaf and facelifted Renault Zoe in the first half, although MARC said the sales of the EV models had yet to gain much traction.
Sales of its new variant Nissan Serena Impul J since July has been encouraging.
"Of its two assembly plants in Malaysia, the overall utilisation rate would decline to 56 per cent in 2023 on an annualised basis based on the first half figures (2022: 61 per cent)."
Its Vietnamese plants in Danang had recently resumed operations with the introduction of Wuling commercial vehicles, MARC said.
Tan Chong plans to introduce more completely knocked down models (passenger and commercial) to improve on its low utilisation rates of less than 25 per cent as at end of the first half of 2023.
"Despite the challenges it faces in regional markets, the group has indicated that it would continue to operate in these markets," it added.
For the first six months, Tan Chong's group revenue was lower by 21.8 per cent year-on-year (y-o-y) to RM1.2 billion.
Given the low operating margin which declined to 1.29 per cent in the first half and higher cost, the group recorded pre-tax loss of RM5.5 million.
Cash flow from operations was negative at RM128.9 million partly due to inventory build-up, while total borrowings remained unchanged at RM1.4 billion.