• Keep SELL, revised MYR0.74 TP from MYR0.76, 26% downside. 4Q23 saw another quarter of widening losses for Tan Chong Motor, with FY23 core net loss growing to MYR112.3m. We reiterate our call, as we think TCM will continue to bleed, given the lack of catalysts to reverse widening losses.

• Below expectations. TMC’s 4Q23 core net loss of MYR50.1m brought FY23 core net loss to MYR112.3m, which underperformed against ours and the Street’s expectations of losses of MYR63m and MYR50m for FY23. The deviation from our estimate is mainly due to higher-than-expected expenses, as revenue was above our expectations. No dividend was proposed in 4Q23, as expected.

• Results review. Softer revenue of MYR644m in 4Q23 (-13% YoY) was mainly due to weaker automotive segment revenue – down 19% YoY, on the back of lower sales volumes (c.-11% YoY). This resulted in its 4Q23 EBITDA to plunge 111% YoY. Though its 4Q23 earnings is partially dragged by a MYR13m FX loss, TCM would have still been in the red if the FX losses were stripped out, as current low level of revenue is insufficient to cover its costs.

• Outlook remains lukewarm. As we are anticipating Malaysia’s TIV to soften in 2024, we think TCM's sales volume could continue to drop this year. We understand that demand for its newly-launched Nissan Leaf EV and Renault Zoe EV has not been exciting – likely due to unattractive pricing and also because the domestic market is still in the early stages of EV adoption. On top of that, stiffer competition in both local and overseas markets continues to drag TCM’s earnings. While it recently entered into an agreement with GAC Motor International to sell GAC vehicles and spare parts in Vietnam, we believe the incremental revenue would be minimal considering that Vietnam is relatively a small market for the automotive sector (around 300-400k units per year vs Malaysia’s 600k-800k). Given the lack of new model launches, we expect TCM to continue losing ground to its rivals in terms of market share. In FY23, Nissan's market share in Malaysia stood at 1.3% (vs FY22: 1.9%).

• Forecast. We maintain our FY24-FY25 forecasts, as we still expect TCM to continue to be loss-making, given the lack of visibility on its turnaround.

• Still SELL, with a lower MYR0.74 TP (from MYR0.76) post housekeeping adjustments. We derived our TP by ascribing a P/BV of 0.2x to FY24F book value, at -2SD from its 5-year mean as the stock lacks earnings visibility. Our TP also includes an ESG discount of 10%. We continue to recommend investors to avoid this counter – we think TCM not only lacks positive catalysts, but might also undergo a further de-rating due to continued losses.

• Key upside risks include stronger-than-expected demand for Nissan vehicles, and better-than-expected FX movements.

Source: RHB Research - 1 Mar 2024