TCHONG (4405) : RHB Research upgrades Tan Chong to Neutral, trims target price
KUALA LUMPUR: RHB Research has upgraded Tan Chong Motor to Neutral from Sell after trimming its target price from RM3.55 to RM3.10 after ascribing an unchanged 11.5 times target price-to-earnings (P/E) in line with peer average to 2015 earnings.
The research house had on Monday trimmed its 2014-2016 recurring net profit forecasts by 4.8%, 12.8% and 13.6% respectively.
“While its absolute forward P/E valuations are not especially appealing, we think the share price will be supported by the 21.6% discount to historical book value/share,” it said.
RHB Research said 2014 had been been a washout year for Tan Chong Motor. It explained the domestic competitive landscape shifted with the launch of all new B-segment models by Toyota and Honda that helped them to regain market share lost to the Nissan Almera in 2013.
It also said the customs dispute in Vietnam, which was resolved in August, had set back production at its Danang plant from the lack of parts and components.
“Tan Chong is reassessing its business model. We understand that management intends to relieve the pressure on its balance sheet by reducing demands on working capital and scaling back on capex plans.
“This could involve a structural shift toward an asset light business model involving the elimination of some significant capital assets off the balance sheet and running down inventory levels,” it said.
RHB Research said about 60% of Tan Chong’s manufacturing cost of sales was transacted in foreign currency (80% in US dollars).
It also said the continued US dollar strength would crimp margins that would not be offset by a weaker Japanese yen. Other risks include slower-than-expected economic growth, weaker consumer sentiment, higher interest rates and a severe tightening of financing.
“Tan Chong will launch the all new Nissan X-Trail sports utility vehicle (SUV) in early 2015 that will plug a major gap in its flagging model line-up domestically. It is targeting monthly sales of 400-500 units of the new SUV. Tan Chong will introduce a facelift Almera and a new Navara pickup truck in 2015,” it said.
http://www.thestar.com.my
KUALA LUMPUR: RHB Research has upgraded Tan Chong Motor to Neutral from Sell after trimming its target price from RM3.55 to RM3.10 after ascribing an unchanged 11.5 times target price-to-earnings (P/E) in line with peer average to 2015 earnings.
The research house had on Monday trimmed its 2014-2016 recurring net profit forecasts by 4.8%, 12.8% and 13.6% respectively.
“While its absolute forward P/E valuations are not especially appealing, we think the share price will be supported by the 21.6% discount to historical book value/share,” it said.
RHB Research said 2014 had been been a washout year for Tan Chong Motor. It explained the domestic competitive landscape shifted with the launch of all new B-segment models by Toyota and Honda that helped them to regain market share lost to the Nissan Almera in 2013.
It also said the customs dispute in Vietnam, which was resolved in August, had set back production at its Danang plant from the lack of parts and components.
“Tan Chong is reassessing its business model. We understand that management intends to relieve the pressure on its balance sheet by reducing demands on working capital and scaling back on capex plans.
“This could involve a structural shift toward an asset light business model involving the elimination of some significant capital assets off the balance sheet and running down inventory levels,” it said.
RHB Research said about 60% of Tan Chong’s manufacturing cost of sales was transacted in foreign currency (80% in US dollars).
It also said the continued US dollar strength would crimp margins that would not be offset by a weaker Japanese yen. Other risks include slower-than-expected economic growth, weaker consumer sentiment, higher interest rates and a severe tightening of financing.
“Tan Chong will launch the all new Nissan X-Trail sports utility vehicle (SUV) in early 2015 that will plug a major gap in its flagging model line-up domestically. It is targeting monthly sales of 400-500 units of the new SUV. Tan Chong will introduce a facelift Almera and a new Navara pickup truck in 2015,” it said.
http://www.thestar.com.my
