Tan Chong - Almera Sets Sales on Fast Gear

Tan  Chong  Motor  Holdings  (TCM)  is  expected  to  see  an  upward  consensus’ earnings  revision,  thanks  to  the  better-than-expected  sales  of  the  Nissan  Almera. Management  guided  that over 8k  Almera  bookings  are still  outstanding and will  be delivered  over  the  next  two  to  three  months.  As  such,  we  raise  our  vehicle  sales projections by 8%-9% for FY13 and FY14. With the earnings upgrade of  7%-8% due to the higher volume, we also raise our FV to RM5.74, premised at 11x PE.

Almera selling like hot cakes. TCM sold roughly 6.5k units of the Nissan Almera in FY12, surpassing our 3k forecast. Management has in the first week of January guided that over 8k Almera bookings are still outstanding, and these are expected to be delivered over the next two to three months. With near-term orders set to be encouraging at around 145 new bookings a day, we estimate that the numbers could well exceed our initial forecast of 12k units for FY13. As such, we now raise our Almera vehicle sales assumption to 16k units for FY13 and 12k for FY14, numbers which we still see as fairly conservative. Note that TCM’s Almera production line has a capacity of 22k units per annum and as such, any production bottleneck and disruptions are highly unlikely.  

Danang kicking off soon. Management pointed out that its plant in Danang, Vietnam will be able to commence production sometime in late-2Q, at the very latest, after it obtains all relevant  approvals  by  the  authorities  and  Ministry  of  Transport.  Management  intends  to assemble the Almera in this plant and we think TCM could replicate the model’s success in Malaysia in Vietnam as well.

Boosting  sales  of  its  other  lineups.  TCM  has  also  been  promoting  its  other  vehicles aggressively  to  spur  more  sales.  One  notable  promotion  is  offering  loans  that  come  with 0% interest for the first 12 months for potential buyers of the Teana, Sylphy, Navara and X Gear.  We  remain  confident  that  TCM  should  be  able  to  achieve  our  FY13  vehicle  sales projection of 48k units, a 39% y-o-y hike from the 35k units sold in FY12.  

Upgrade  earnings,  maintain  BUY.  With  the  Almera  having  the  highest  localization  rate amongst  its  line  up  coupled  with  the  economies  of  scale  achieved  from  the  higher production  output,  we  believe  that  TCM’s margins  could  be  nudged  higher.  Following  the higher vehicle sales assumption, lifted by the Almera, our earnings for FY13 and FY14 is revised by 8% and 7% respectively. This raises our FV to RM5.74 premised at 11x PE.

Source: OSK