,In a note, AmBank Research said one of the reasons for the losses was the lower-than-expected sales volume in the domestic market despite the boost from the Penjana SST exemption throughout the second half of 2020. The other reason is due to its operations in Vietnam.
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KUALA LUMPUR: The worst may not be over for automotive distributor Tan Chong Motor Holdings Bhd (TCM) as overseas operations and lower Nissan sales may put a further dent to its bottomline.
For the financial year ended Dec 31,2020 (FY20), the group posted a core net loss of RM163.5mil, which came in way below consensus full-year estimates.
In a note, AmBank Research said one of the reasons for the losses was the lower-than-expected sales volume in the domestic market despite the boost from the Penjana SST exemption throughout the second half of 2020.
The other reason is due to its operations in Vietnam.
“We believe that the variance was largely due to wider-than-expected net losses from TCM’s Vietnam operations from the gradual phasing out of the manufacturing and distribution of Nissan marques in the region due to the expiry of agreements with its principal, Nissan Japan, ” AmBank Research said.
However, the losses were mitigated by the group’s Indochina business which posted a marginal 3% growth on the earnings before interest, taxes, depreciation and amortisation (ebitda) level to RM22.8mil in FY20.
Note that the group’s Vietnam operations have been a loss-making unit since the first quarter of FY19.
The brokerage foresees that the group may incur wider net losses of RM95.2mil and RM37.6mil in FY21 and FY22, respectively, due to lower Nissan sales volume in the domestic market and larger net losses from the group’s Vietnam operations.
Maybank IB Research concurred that the group’s overseas operations would continue to be a drag on its earnings, adding that its exclusive distributorship and after-sales service in Vietnam expired in September last year following the non-renewal decision by Nissan Motor.
“We see this as a setback to its earlier intention to de-risk its sole Malaysia Nissan operations and grow its regional footprint in South-East Asia.
“Putting things into perspective, we see better values in its automotive peers for now, ” Maybank added.
As such, Maybank is keeping a “sell” call on TCM and a target price of RM1 based on -2 standard deviation price-to-book value, equivalent to price-to-earnings ratio of 14 times for FY22.
AmBank maintained its “underweight” recommendation on the stock with a marginally lower fair value of 65 sen per share compared to 67 sen previously.