Results Note 01 April 2021 Tan Chong Motor MARKET PERFORM ↔ Price: RM1.19 FY20 Below Expectations Target Price: RM1.25 ↓ By Wan Mustaqim Bin Wan Ab Aziz l [email protected] Its FY20 results plunged further into the red with core losses Share Price Performance of RM137.2m compared to core PATAMI of RM46.2m in FY19, 1.40 below our/consensus core losses expectation of RM85m/RM84.6m, respectively, due to higher-than-expected 1.30 recognition of bills of demand from Royal Malaysian Customs Department. We revise FY21 estimates to core loss of 1.20 RM29.7m from core profit of RM39.1m assuming there are still 1.10 some left-over bills of demand to be recognized from recent out-of-court settlement of RM109m. Lower TP to RM1.25 (from 1.00 RM1.30) but maintain MP as we still see recovery next year driven by its bread-and-butter all-new Almera. 0.90 Dividend cut to conserve cash. There was no dividend announced for the quarter (4QFY19: 2.0 sen), below expectation, leaving FY20 DPS at 1.5 KLCI 1,573.51 sen (FY19: 4.0 sen). Management noted that it is focusing on optimising YTD KLCI chg -3.3% operations and conserving cash with cost containment initiatives in order to YTD stock price chg -5.6% maintain a sustainable financial position and business growth. YoY, FY20 plunged further into the red with core losses of RM137.2m Stock Information compared to core PATAMI of RM46.2m in FY19, suffering from a highly Shariah Compliant No competitive environment in the domestic and overseas markets as well as Bloomberg Ticker TCM MK EQUITY weaker consumer sentiment caused by the Covid-19 pandemic, which Market Cap (RM m) 776.1 weakened its sales (-29%), and worsened by the unfavourable forex rate Shares Outstanding 652.2 and higher operating expenses to sustain idle operations. The local Nissan 52-week range (H) 1.29 vehicles sales was at 14,160 units (-33%), as per MAA statistics - lacking 52-week range (L) 1.00 new launches to drive volume to counter the competition. Nonetheless, the 3-mth avg daily vol: 123,759 financial services segment recovered to a profit of RM20.9m (-21%) after Free Float 24% experiencing 1H loss from higher impairment loss on hire purchase Beta 0.7 receivable mostly recognised in 2QFY20. QoQ, 4QFY20 core losses expanded to RM65.6m compared to core Major Shareholders losses of RM9.7m in 3QFY20 mainly due to: (i) the impact from the Tan Chong Consolidated 40.5% settlement of the bills of demand from Royal Malaysian Customs Employees Provident Fund 6.5% Department (undisclosed, recent settlement around RM109m), and (ii) Nissan Motor Co Ltd 5.7% stiffer competition from other vehicle brands despite the launch of its all new Almera Turbo on 1 November 2020 and to a certain extent, the Summary Earnings Table prolonged CMCO which affected its sales (-23%). Nevertheless, the local Nissan vehicles unit sales was higher at 4,993 units (+4% QoQ), as per FY Dec (RM m) 2020A 2021E 2022E MAA statistics, mostly from the lower ASP and margin commercial Turnover 2,959.6 3,356.4 3,988.1 segment. Additionally, financial service was stronger (+37%) due to the EBIT -115.5 -25.2 123.5 higher recognition in reversal of impairment loss on hire purchase PBT -161.3 -63.2 89.0 receivables. NP/ NL -165.6 -29.7 41.8 CNP / CNL -137.2 -29.7 41.8 Outlook. With the launching of long-awaited all-new Nissan Almera on 1 Consensus (NP) - 25.7 41.5 November 2020, we believe this could be a fresh catalyst for TCHONG to Earnings Revision - >100% new return to profitability, and to offset the negative impact from its under- Core EPS (sen) -21.0 -4.6 6.4 utilised Danang plant in Vietnam and the expirations of both CBU and CKD Core EPS growth >100% -78.3% >100% agreements there with its principal on 30 September 2020 and 19th NDPS (sen) 1.5 - - September 2020, respectively. On the other hand, the overseas Distribution BVPS (RM) 4.35 4.31 4.37 Agreement (ODA) with SAIC Motor International Co., Ltd (SMIL) for MG brand SUV (CBU) and recently, SAIC GM Wuling Automobile for Pickup PER (x) N.M N.M 18.6 and Cargo Van in Vietnam could be a saving grace in the next five years. PBV (x) 0.3 0.3 0.3 Net Gearing (x) 0.3 0.3 0.3 We revise FY21E numbers to core loss of RM29.7m from core profit of Net Div. Yield (%) 1.3 - - RM39.1m assuming there are still some left-over Customs bills of demand to be recognized from recent out-of-court settlement of RM109m. Maintain MP with a lower Target Price of RM1.25 (from RM1.30) based on 0.29x FY22E BVPS (at 5-year historical mean PBV). Key risks to our call include: (i) lower-than-expected car sales, and (ii) lower-than-expected margin. PP7004/02/2013(031762) Page 1 of 4 Tan Chong Motor Holdings Bhd Results Note 01 April 2021 Result Highlight 4Q 3Q QoQ 4Q YoY 12M 12M YoY FYE Dec (RM m) FY20 FY20 Chg FY19 Chg FY20 FY19 Chg Turnover 747.9 964.5 -22.5% 974.6 -23.3% 2,959.6 4,172.4 -29.1% EBIT (66.1) 10.5 >100% 38.5 >100% (115.5) 169.6 >100% Associate (0.4) 0.9 >100% 0.5 >100% 0.9 2.3 >100% PBT/(LBT) (76.9) 1.7 >100% 22.9 >100% (161.3) 114.3 >100% Taxation 9.4 (11.7) >100% (20.4) >100% (15.5) (67.6) 77.1% PATAMI/(LATAMI) (69.6) (7.3) >100% (1.0) >100% (165.6) 43.3 >100% Core PATAMI/(LATAMI)* (65.6) (9.7) >100% 6.6 >100% (137.2) 46.2 >100% EPS (sen) (10.4) (1.1) >100% (0.2) >100% (24.6) 6.4 >100% Core EPS (sen) (9.8) (1.4) >100% 1.0 >100% (20.4) 6.9 >100% DPS (sen) 1.5 1.5 2.0 3.0 4.0 EBIT margin N.M 1.1% 3.9% N.M 4.1% Pretax margin N.M 0.2% 2.4% N.M 2.7% PATAMI margin N.M N.M N.M N.M 1.0% Core PATAMI margin N.M N.M 0.7% N.M 1.1% Effective tax rate N.M N.M N.M N.M N.M Source: Company, Kenanga Research Segmental Breakdown 4Q 3Q QoQ 4Q YoY 12M 12M YoY FYE Dec (RM m) FY20 FY20 Chg FY19 Chg FY20 FY19 Chg Revenue 747.9 964.5 -22.5% 974.6 -23.3% 2,959.6 4,172.4 -29.1% Automotive 727.6 940.3 -22.6% 949.9 -23.4% 2,870.1 4,073.7 -29.5% Financial services 17.1 18.5 -7.6% 18.6 -8.2% 70.1 80.9 -13.3% Others 3.2 5.8 -45.0% 6.1 -47.6% 19.5 17.9 8.6% Segment EBITDA (34.5) 60.7 >100% 79.5 >100% 40.5 328.6 -87.7% Automotive (44.1) 55.4 >100% 85.3 >100% 21.6 301.0 -92.8% Financial services 19.6 14.3 36.9% 6.5 199.9% 20.9 26.4 -20.8% Others (9.9) (9.0) -10.7% (12.4) 19.7% (2.0) 1.2 >100% Segment EBITDA margin N.M N.M 8.2% 1.4% 7.9% Automotive N.M N.M 9.0% 0.8% 7.4% Financial services 114.5% N.M 35.0% 29.8% 32.6% Others N.M N.M N.M N.M 6.6% Source: Company, Kenanga Research PP7004/02/2013(031762) Page 2 of 4 Tan Chong Motor Holdings Bhd Results Note 01 April 2021 Peer Comparison Core Earnings Net Div Name Market Shariah Revenue Growth PER (x) - Core Earnings PBV (x) ROE (%) Target Last Price Current Growth Yld (%) Cap Complia Price Rating (RM) FYE 1-Yr. 2-Yr. 1-Yr. 2-Yr. 1-Yr. 2-Yr. 1-Yr. 1-Yr. 1-Yr. (RM'm) nt Hist. Hist. (RM) Fwd. Fwd. Fwd. Fwd. Fwd. Fwd. Fwd. Fwd. Fwd. STOCKS UNDER COVERAGE BERMAZ AUTO BHD 1.44 1,672.5 Y 04/2021 51.7% -7.8% -11.6% 42.3% 16.6 18.8 13.2 3.2 2.6 15.3% 3.2% 1.30 MP DRB-HICOM BHD 1.92 3,711.8 Y 12/2021 7.0% 20.7% 68.4% 15.2% N.A. 11.4 9.9 0.4 0.4 3.2% 1.6% 2.50 OP MBM RESOURCES BERHAD 3.43 1,340.7 Y 12/2021 8.9% 4.4% 21.0% 5.6% 8.1 6.7 6.3 0.6 0.6 9.2% 3.5% 4.60 OP SIME DARBY BERHAD 2.40 16,326.1 Y 06/2021 5.9% 5.9% 15.0% 1.8% 15.7 13.6 13.4 1.1 1.1 7.9% 6.3% 2.55 OP TAN CHONG MOTOR HOLDINGS BHD 1.19 776.1 N 12/2020 13.4% 18.8% -121.6% 40.7% N.A. N.A. 19.1 0.3 0.3 -1.0% - 1.25 MP UMW HOLDINGS BHD 3.26 3,808.6 Y 12/2021 13.3% 12.2% 28.7% 7.3% 16.6 12.9 12.0 0.6 0.5 4.3% 1.8% 4.00 OP Simple Average 16.7% 9.0% 0.0% 18.8% 14.2 12.7 12.3 1.0 0.9 6.5% 2.9% Source: Bloomberg, Kenanga Research This rest of this page is intentionally left blank PP7004/02/2013(031762) Page 3 of 4 Tan Chong Motor Holdings Bhd Results Note 01 April 2021 Stock Ratings are defined as follows: Stock Recommendations OUTPERFORM : A particular stock’s Expected Total Return is MORE than 10% MARKET PERFORM : A particular stock’s Expected Total Return is WITHIN the range of -5% to 10% UNDERPERFORM : A particular stock’s Expected Total Return is LESS than -5% Sector Recommendations*** OVERWEIGHT : A particular sector’s Expected Total Return is MORE than 10% NEUTRAL : A particular sector’s Expected Total Return is WITHIN the range of -5% to 10% UNDERWEIGHT : A particular sector’s Expected Total Return is LESS than -5% ***Sector recommendations are defined based on market capitalisation weighted average expected total return for stocks under our coverage.