Tan Chong’s 9MFY23 results disappointed analysts it remained in the red due to the lack of new launches, and its inability to raise prices to pass on rising production costs including a weaker MYR, Kenanga widened its FY23-24F net loss forecasts and reduce TP by 6% to RM0.75 while maintaining UNDERPERFORM call.
The Nissan franchise holder’s core YTD net loss of RM78.4m already exceeded the full-year net loss forecast of RM49.7m and the full-year consensus net loss estimate of RM61.4m said Kenanga. The key variance against the forecast came from its inability to contain operating expenses. YoY, its revenue plunged (-18%), dragged by waned local Nissan vehicle sales of 7,452 units (-32%) in a highly competitive environment where competitors have vigorously launched fresh all-new models which received an overwhelming responses. On the other hand, there was only a marginal decrease in its financial services segment which Kenanga believes this was due to Tan Chong’s more competitive hire purchase rate for its own brand. There was some consolation from higher revenue at its solar energy division and a net foreign exchange gain.
In terms of regional breakdown, the local market (90% of group revenue) showed weak sales (-15%) and profit (-37%) driven by just three models of Nissan Almera Turbo, Serena, and Navara. Due to the challenging operating environment, its overseas operation continued to be in losses. Its Vietnam operation (10% of group revenue) recorded lower sales (-33%) and a higher loss of RM32.4m (from loss of RM10.9m in 9MFY22). Its other markets (Cambodia, Laos and Myanmar)
recorded lower growth in sales (-47%), with a loss of RM5.2m.
Consequentially, it recorded a higher core net loss of RM78.4m compared to 9MFY22 core net loss of RM12.2m. QoQ, TCHONG’s 3QFY23 rose 5% mainly due to higher revenue from its solar energy division. Its bread-and-butter automotive (-1%) and financial services (+1%) still recorded weak performance dragged by weak Nissan vehicle sales of 2,418 units (-5%). Its core net loss widened to RM50.1m from RM18.8m three months ago due to poor cost containment.
Kenanga widens its FY23F net loss forecast to RM122.9m (from a loss of RM49.7m) and FY24F net loss forecast to RM60.6m (from a loss of RM32.1m), to account for higher-than-expected operating expenses. It has also reduced its TP by 6% to RM0.75 (from RM0.80) based PBV of 0.18x on FY24F BVPS which is at an 80% discount to the auto sector’s average forward PBV of 0.9x to reflect its less popular Nissan brand vs. other foreign brands in the market.
The house remainds cautious on TCHONG due to its insignificant 1% share of the total industry volume its lack of new launches while its competitors have successfully launched all-new models, and its inability to raise prices to pass on rising production cost, especially with the weakening of MYR against USD.
