Thursday, September 26, 2013

TCM spearing ahead


Posted on 24 September 2013 - 05:40am

PETALING JAYA (Sept 24, 2013): Motor analysts are most upbeat on Tan Chong Motors Holdings Bhd (TCM) prospects, driven by the group's expanding overseas footprint and a strong line up of new Nissan models that continue to win car buyers at the expense of its rivals at home, even as total industry volume (TIV) growth in the domestic market is seen to be flattish this year.

"Amid growing concerns in the sector, we continue to like TCM as vehicle sales remain resilient supported by strong model launches in 2013,'' Maybank IB Research said yesterday.

Car sales volume slowed to 51,104 units in August, the Malaysian Automotive Association said last week, as the market "normalised" following a surge in buying ahead of the Hari Raya festivities.

"We expect the 50+k vehicle sales level to sustain in September-October. We are concerned on margins erosion as car distributors sacrifice margins for volume as competition heats up in the second half of 2013,'' Maybank said.

National carmakers, led by Perusahaan Otomotif Kedua Sdn Bhd (Perodua) and DRB Hicom Bhd's owned Proton Holdings Bhd, dominated TIV in August with a 50% market share. Proton, however, continue to struggle as its market share slipped from 23% to 22% year-to-date.

Honda saw a 72% jump in new sales to 33,032 units as of end of August, led by demand for Civic and CRV. Meanwhile, TCM's Nissan franchise saw a 60% increase in volume to 35,726 units over the same eight month period.

"Proton continued to lose share to Perodua and Nissan, while Toyota continued to lose share to Honda,'' CIMB Research said.
The firm sees TIV in 2013 to be flat at 630,000 units.

"We do not expect a strong finish this year. Excise duties will not be cut and other austerity measures expected in the budget could affect sentiment,'' it said.

The government will table its Budget 2014 to Parliament on Oct 25.

The Finance Ministry secretary-general Tan Sri Mohd Irwan Serigar Abdullah said that the government is working to include the goods and service tax (GST) in the upcoming budget for it to be introduced in 2015.

CIMB Research reckoned that GST will probably "cut a few percentage points" off car prices, but said "market saturation" means it will continue to hold its "neutral" call on the automotive sector.

Despite its cautious view on the sector, CIMB Research is optimistic about TCM, the only stock in the sector it rated as "buy" with a target price of RM8.00.

"We expect earnings growth to stand out from its new model pipeline while being a beneficiary of a weakening yen,'' it said.
"It is also the only Malaysian player that has established a footprint outside the country, with its operations in Indochina and Myanmar,'' the firm added.

TCM is also rated a buy at Maybank Research with a target price of RM7.45.

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