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Monday, November 25, 2013

CIMB Research retains Outperform on Tan Chong Motors at RM7.73

Published: Monday November 25, 2013 MYT 8:22:00 AM 
Updated: Monday November 25, 2013 MYT 8:26:28 AM

KUALA LUMPUR: CIMB Equities Research said Tan Chong Motor’s (TCM) management has reinforced its outlook for the next two years with FY14 as a year to condolidate.

It said on Monday at the recent 3Q13 results briefing, TCM said with FY14 as a year of consolidation, FY15 will see TCM shifting gear towards its 100,000 units per annum target.

“We make no changes to our EPS forecasts and RNAV-based target price. Key catalysts include the introduction of new models. TCM is our top pick in the Malaysian auto sector,” it said.

CIMB Research said during a briefing for analysts, TCM management explained FY14 will be a year of consolidation so earnings are expected to be flat, while FY15 will see the company shifting gear towards attaining its end target of selling and/or assembling 100,000 units per annum.

In FY13, TCM expects to achieve a 40% unit sales growth to just below 50,000, on the back of the introduction of the Almera. FY15 unit sales growth will be driven by another “killer model” but in the A-segment in which TCM does not yet have representation.

“The emphasis on the budget conscious, RM50,000 and below price point A-segment will be timely because management believes Malaysian consumers will start to tighten their belts and trade down when GST is introduced in FY15.

“Although the GST will not have a direct impact on the price of cars as it replaces sales tax, management noted that every country that introduces GST sees its GDP growth affected because the cost of doing business and the cost of living go up.

“However, they also pointed out that GST was necessary to keep interest rates and currency conducive, factors that are crucial to the industry,” said the research house.

CIMB Research said the briefing reinforced its forecasts of a mere 6% EPS growth next year, and 13% in FY15. But there is the propensity for growth to be pushed further out towards FY15, depending on currency shifts in FY14 and the reception of the A-segment model which could surprise on the upside.

“The absence of a special dividend in 3Q13 may have been disappointing, but understandable as TCM adjusts to a year of consolidation in FY14. The enlarged group is feeling the impact of a weaker economy, with TCM’s sister companies involved in F&B and retail. We remain selective in autos; TCM is our only Outperform in the sector,” said the research house.

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