TCM holds up despite weakening sales — Analyst
Posted on July 16, 2011, Saturday
MORE RECOVERY TIME: TCM confirmed that bookings for the Nissan Teana have softened, with expectations to aggressively gain market share in the 3Q11 as Nissan supplies recovers ahead of its peers.
KUCHING: Tan Chong Motor Holdings Bhd (TCM) is expected to endure the current lull experienced by Japanese marquees in the automobile industry, despite lacklustre sales.
A research report by AmResearch Sdn Bhd (AmResearch) stated that the hype surrounding the complete-knock-down (CKD) Teana, which was launched in November last year, seemed to have fizzled out quickly.
Underlining AmResearch’s view, TCM had confirmed that bookings for the Teana had softened, partly to be blamed on recent amendments to the Hire Purchase Act (HPA) effective June 15 and the lack of accessories versus competing models.
TCM planned to include a built-in GPS system for Teana models from the third quarter of 2011 (3Q11) onwards. Teana sales now average circa 300 units per month from 380 in December 2010 and 1,126 in January 2011.
Nissan’s share of the total industry volume (TIV) for 2Q11 fell 18 per cent quarter-on-quarter (q-o-q) in Malaysia and down 41 per cent q-o-q for Indochina. Revenue was expected to fall by 17 per cent to 20 per cent q-o-q.
TCM expected to aggressively gain market share in the 3Q11 as Nissan supplies recovered ahead of its peers, noted the research firm.
However, TCM expected a price war to occur towards 4Q11 when the supply situation recovered for rivals such as Toyota and Honda. This was given the limited time that distributors have to hit annual sales target committed to principals. Overall, TIV may rise in 4Q11, but sector margins would be hit.
On a positive note, AmResearch believed that Nissan Motor’s partnership with Proton was expected to be announced by the end of the month.
The deal involved usage of Nissan’s V-platform for Proton’s Emas model where Proton would likely underwrite up to 100,000 unit sales, thus lowering unit cost when TCM would introduce the CKD Nissan Sunny in 4Q12, which is based on the same platform.
In addition, there would be the rebadging of 600 units of Nissan Fuga as the new Proton Perdana to replace the existing government fleet.
TCM also stood to benefit from Nissan 88 plans, AmResearch added, where Nissan Motor expected sales in the Asean region to more than quadruple to over half a million units per annum by 2016 from 129,725 units in 2010.
The idea was to assist Nissan Motor with additional capacity when supplies run out as Nissan currently controls only two plants in Asean via its 75 per cent stake in Nissan Motor Indonesia and Nissan Motor Thailand.
TCM has manufacturing capacity in Malaysia, Vietnam from 4Q12 and Sabah (which would cater mainly to the Indonesian market) from 2015.
The firm opined, “In the near-term, we are concerned that expectations of a stronger second half of 2011 to counter the 2Q11 earnings weakness may not materialise, which could lead to further earnings cuts by analysts.”
“This is given a soft patch in economic recovery which resulted in gross domestic product (GDP) forecast cuts of late, uncertainties in car trade-in values and slower purchase process as a result of amendments to the HPA and a price war in 4Q11 which will erode margins.”
In concluding the report, AmResearch pegged TCM’s fair value at RM4.88 per share, based on nine times FY11 forecasted earnings.
