KUCHING: Tan Chong Motor Holdings Bhd (TCM) is expected to report sequentially improved earnings in the second half of 2012 (2H12), helped by sales of the new Almera to be launched in the fourth quarter (4Q12), earmarking 2012 as a transitional year.
RHB Research Institute Sdn Bhd (RHB Research) in a research note said that group was unlikely to make up for the weak earnings in 1H12 and forecast TCM to record lower earnings for financial year 2012 ending December (FY12), down six per cent year-on-year (y-o-y).
“We expect the Almera to be competitively priced against its main rivals from Toyota and Honda and believe the Almera should achieve sales of about 1,000 units per month.
“The Almera will help to freshen up the Nissan model range although many of its other key models are in the latter half of their product cycle.
“Nissan intends to revive its once popular Datsun brand in emerging markets. TCM intends to launch the Datsun range of entry-level models in Malaysia by 2015,” it stated.
RHB Research noted that TCM’s plant in Danang, Vietnam was recently completed and expected to commence commercial production soon with deliveries beginning in January 2013.
TCM hoped to capitalise on dispersed manufacturing trends as manufacturing activities shift out of Japan to regional production centres, to enable Nissan to counter the high cost of manufacturing in Japan, the volatile yen and its ‘unstable geology’.
Under Nissan’s mid-term plan, TCM was expected to deliver 100,000 units per annum by 2016, the research house added.
RHB Research noted risks to the forecast, namely regulatory changes; weaker economy and tighter financing conditions; unfavourable forex trends and heightened competition.
“TCM’s earnings are likely to have bottomed with 2013 likely seeing a strong earnings bounce.
“While there are few near term re-rating catalysts, the tightly held shareholding structure means that shareholders with a longer-term investment horizon should begin to accumulate the stock on weakness.
“We note that insiders have been aggressively building positions in the past month,” the research house observed while making no changes to its in-house forecasts.
As such, it lifted the fair value to RM4.75 per share (from RM4.50 per share), derived from ascribing a 10 times target price earnings ratio to FY13 earnings. The target PER was close to average sector multiples, it noted.