MIDF cuts Tan Chong’s earnings forecast on lower Nissan sales


MIDF Research has revised downward its earnings forecast for Tan Chong Motor Holdings Bhd for the financial year ending Dec 31, 2021 (FY21F), with the broker forecasting Tan Chong to post a larger net loss of RM33 million for the year compared to a net loss of RM5.4 million in FY20. 

MIDF analyst Hafriz Hezry stated that this was due to the lower sales assumption of Nissan vehicles of 12,700 units, which is a decline of 10% year-on-year (YoY). 

“While the impact of the third Movement Control Order (MCO 3.0) is temporary and sales are expected to rebound in the final quarter, we think it would be a stretch for production and sales to catch up to our previous estimates, judging by current momentum. 

“We, therefore, revise down our FY21F to a larger net loss of RM33 million,” he wrote in a research note on Tan Chong yesterday. 

Hafriz added that the forecast for Tan Chong’s FY22F is left unchanged as he expects the company’s prospects to improve on the back of a further six-month extension of the sales tax holiday till June 2022 and assuming no further operational disruption. 

In line with the earnings revision, MIDF has trimmed its target price for Tan Chong to RM1.21 from RM1.22 previously. 

“We continue to peg Tan Chong to 0.3 times FY22F book value, at par to historical average until further details from the upcoming analyst briefing later this week,” he noted. 

MIDF maintained its ‘Neutral’ call on Tan Chong as it expects the group to be one of the main beneficiaries of the electric vehicle (EV) duty exemptions under Budget 2022. 

At this juncture, MIDF believes the duty exemption will benefit mainly the lower volume, higher price segment of the market, and pending details on price revisions for the Nissan Leaf and potential re-introduction of EV models under the Renault brand. 

For the third quarter ended Sept 30, 2021 (3Q21), Tan Chong’s net loss widened to RM44.2 million from a net loss of RM7.33 million recorded a year ago, as the group’s business in Malaysia and the region was affected by MCO for most of the reporting quarter to curb the spread of Covid-19 virus. 

Quarterly revenue declined 54.46% to RM439.28 million from RM964.54 million in 3Q20 previously, while the quarterly loss per share expanded to 6.78 sen from 1.12 sen in 3Q20. 

For the cumulative nine months (9M21), Tan Chong’s net loss narrowed to RM58.68 million from RM95.96 million in 9M20, while revenue fell 24.48% to RM1.67 billion from RM2.21 billion in 9M20.

According to Tan Chong, the reduced 9M21 net loss was mainly due to better sales mix, lower operating expenses, lower impairment on hire purchase receivables and higher unrealised foreign exchange gain.

Hafriz added that the group’s results were weaker than both MIDF’s and consensus’ FY21F net loss of RM5.4 million and RM28.8 million, respectively. 

“The deviation against our forecast is primarily due to lower-than-expected sales volume during the 9M21 period,” he noted. 

Tan Chong’s auto division recorded a lower revenue of RM420.8 million in the 3Q, which was a decline of 55.3% YoY. 

The group’s Indochina operations also registered losses in the 3Q as sales were similarly impacted by movement restrictions in the respective countries.