Tan Chong’s
results disappointed, with
earnings making up only 12-13% of our and consensus estimates,
as sales slowed. The lower earnings were also caused by high operating costs as the cost of
some procured parts escalated due to disruptions arising from the Thai
floods. The lower volume led to a
decline in operating efficiency given that February was a short working month,
during which there was a long festive holiday. We trim our FY12 and FY13
earnings by 15% and 25% respectively, with a lower FV of RM3.59. Downgrade to
SELL.
Disappointing.
Although Tan Chong’s revenue (y-o-y:
-13.2%, q-o-q: +12.4%) was in line, the automaker’s 1Q core earnings of
RM33.7m (y-o-y: -54.9%, q-o-q: -1.1%)
were below estimates, representing only 12-13% of our and consensus forecasts.
During the reporting quarter, and in tandem with the lower revenue versus last year, vehicle sales dropped 13.2%
y-o-y but were relatively higher q-o-q
by 12.4% as production activities bounced back after the Thai floods receded.
The lower earnings were largely due to high operating costs as the cost of some
procured parts escalated as a result of disruptions during the floods.
Furthermore, due to the lower number of vehicles sold, the company’s operating
efficiency declined as February was a short working month, during which there was
a long festive holiday. Meanwhile, its Vietnam subsidiary continued to rack up losses as
vehicles sales industry-wide fell
by a sharp 36% YTD April due to
higher registration tax rates (up from 10% to 15%-20%).
Outlook remains
cautious. We remain concerned on the overall outlook of the Nissan marque
assembler due to declining interest from potential buyers. Sales of its
top-selling model, the Grand Livina, continues to decelerate, although this
was somewhat cushioned by the crossover model, Livina X Gear. With most
of its line-up yet to be renewed and revived, pricing has contracted by an
average of 5% to spur the interest of potential buyers. Management guided
that its vehicle sales will outperform
that of the industry. While we concur with management, the upside to volume
would likely come at the expense of average ASPs (average selling prices) as the company introduces
its lower model line-ups (the segment B sedan in 4Q). While management highlighted that revenue
from the Indochina region will grow, we are still concerned about margins as
the company continues to bear start-up losses.
Trimming earnings.
Downgrade to SELL. We trim our earnings numbers for FY12 and FY13 by 15% and
25% respectively due to the lower revenue assumed (cut by 5% and 12.6%) as we
assume a lower ASP, as well as continued losses from the Vietnam side. Pegged
at an unchanged multiple of 10x, we derive a lower fair value of RM3.59, and downgrade
Tan Chong to SELL from NEUTRAL earlier.
Source: OSK
No comments:
Post a Comment