Kenanga Research has raised its target price for Tan Chong Motor Holdings Berhad (TCHONG) by 8% to 39 sen from 36 sen after narrowing its loss forecasts on better-than-expected foreign exchange conditions and stronger margins from a new model, but remains cautious on the automaker’s turnaround prospects.
The research house reiterated its Underperform recommendation, citing Tan Chong’s small domestic market share, limited pipeline of new vehicle launches and difficulty in passing higher production costs on to consumers.
Kenanga now expects Tan Chong to record a narrower net loss of RM107.1 million in FY26 compared with its previous forecast of RM132.1 million.
For FY27, the research house reduced its projected net loss to RM89.5 million from RM115.8 million.
The revisions reflect more favourable-than-expected foreign exchange movements and higher-than-anticipated margins from the group’s new model.
Following the earnings revisions, Kenanga raised its target price to 39 sen, based on an unchanged price-to-book value (PBV) multiple of 0.1 times Tan Chong’s FY27 forecast book value per share.
The valuation represents an 86% discount to the automotive sector’s average forward PBV of 0.7 times, reflecting what Kenanga described as the relatively lower popularity of the Nissan brand compared with other mid-market foreign automotive brands in Malaysia.
Wuling EV Provides New Model Catalyst
One potential avenue for Tan Chong is its strategic collaboration with SAIC GM Wuling Automobile to locally assemble an affordable entry-level compact electric vehicle.
Under the collaboration, the vehicle will be marketed as the Tan Chong-branded TQ Wuling Bingo EV.
However, Kenanga remains cautious over the potential impact of the new model, noting that Tan Chong continues to lag competitors in introducing new vehicles and is currently relying heavily on a single new model.
The research house said the company’s challenges include its insignificant share of just around 1% of Malaysia’s total industry volume and its limited ability to increase vehicle prices to offset rising production costs.
Competitors, meanwhile, have been introducing all-new models more aggressively, intensifying competition in the domestic automotive market.
Perodua Assembly Deal Unlikely To Transform Plant Utilisation
Tan Chong has also received a letter of intent from Perodua to rent its assembly lines as the national automaker’s newly built Smart Mobility plant is unable to achieve the required localisation rate during the initial commercial production period.
Kenanga said only about 500 Perodua electric vehicles are expected to be produced per month during the first phase, with output to be subsequently scaled according to demand.
The research house believes this initial volume will be insufficient to materially turn around Tan Chong’s under-utilised manufacturing plant.
Based on Kenanga’s estimates, current production of about 65,000 units translates into plant utilisation of only around 13%.
The research house also described market response to the Perodua QV-E as lukewarm, adding uncertainty over how quickly production volumes outsourced to Tan Chong could scale up.
Key To Re-Rating
Despite improving its loss forecasts, Kenanga said it remains cautious on Tan Chong’s investment case as the company continues to lose ground in the new-model launch race.
A more meaningful re-rating would require the introduction of all-new models capable of generating sustained consumer demand, alongside continued favourable foreign exchange conditions.
Kenanga said upside risks to its Underperform call include a stronger recovery in consumer discretionary spending, particularly for big-ticket purchases such as vehicles as inflationary pressures ease.
Other potential catalysts include the introduction of more attractive Tan Chong models that resonate with buyers, as well as the monetisation of the group’s strategic land bank.
A potential privatisation of Tan Chong at a premium to its prevailing market price could also provide upside to Kenanga’s current valuation.
