KUCHING: Tan Chong Motors Holding Bhd’s (Tan Chong) performance in the third quarter of 2013 (3Q13) suffered a setback as it incurred backdated import taxes amounting to US$17 million in Vietnam.
RHB Research Institute Sdn Bhd (RHB Research) highlighted this in a recent note, and explained that Tan Chong’s 3Q13 earnings fell 53 per cent quarter-on-quarter (q-o-q) and 2.9 per cent year-on-year (y-o-y) to RM31.7 million, coming in below the research firm’s and consensus’ estimates.
“The cumulative first nine months of 2013 (9M13) profit of RM183.1 million (an increase of 70.4 per cent y-o-y) reached 52.6 and 55 per cent of our previous forecast and consensus estimates respectively,” it projected.
The research firm explained that the deviation was due to a provision for additional import duties payable in Vietnam in respect of the importation of completely-knocked down (CKD) parts and kits during the 2010 to 2012 period that amounted to US$17 million.
“The group’s adjusted net profit after adding back the tax provision would still have marginally fallen short of our forecasts due to higher operating expenses relating to the group’s expanded business scale in Asean,” it added.
However, on the domestic front, Tan Chong retained its strong performance as its 9M13 revenue revved up 32.3 per cent to RM3.84 billion, fuelled by a 59.6 per cent y-o-y jump in Nissan and Renault vehicle sales.
“Nissan’s market share in Malaysia expanded to 8.1 per cent at end-3Q13 from 5.8 per cent in 2012, mainly due to the strong response to the B-segment Nissan Almera, launched in October 2012.
“However, market competition went up a notch given the introduction of the all-new Toyota Vios.
“Nissan sales going forward will be helped by the recent launch of the Grand Livina and Serena S-Hybrid MPV models,” it explained.
The adjusted 9M13 earnings before interest and tax (EBIT) margin was stable at 8.8 per cent (8.7 per cent growth in the first half of 2013 (1H13).
The group’s high inventory level led to its net gearing spiking higher to 0.56-fold from 0.430-fold at end-1H13.
“We lower our 2013 forecast by 23 per cent after factoring in the tax provision while our 2014 estimates are just 2.3 per cent lower after updating our model.
“We raise our fair value to RM7.25 per share (from RM6.80 per share) on ascribing a 12-fold (from 11-fold) target price earnings to our 2014 earnings forecast. The counter’s premium to the peer average of 11-fold is justified given that the group’s regional strategy will help it sustain long-term growth in addition to its strong pipeline of new models,” RHB Research concluded.