Tan Chong at all-time high, positive medium-term prospects

KUALA LUMPUR: Shares of Tan Chong Motor Holdings Bhd
surged to a fresh record high of RM6.95 on Thursday, underpinned by the
strong financial performance, the liquidity rally on the local bourse
and analysts' upgrade of its fair value.
At 10.25am, it was up 22 sen to RM6.87. There were 380,800 shares done at prices ranging from RM6.65 to RM6.95.
The
FBM KLCI fell 5.59 points to 1,777.44 on profit taking of index-linked
stocks. Turnover was 698 million shares valued at RM456.42mil. There
were 236 gainers, 325 losers and 275 counters unchanged.
RHB Research remains upbeat on the outlook for Tan Chong with a higher fair value of RM7.50 from RM6.50.
It
said the company's strong RM84.1mil profit and a record quarterly
revenue of RM1.44bil was driven by strong volume growth, improved
operating leverage from lower operating costs per unit and favourable
Japanese yen exchange rates resulting in lower import cost.
However it expects softer auto sales come second quarter due to the uncertainties in April.
"Tan
Chong is guiding for softer auto sales in 2Q13 triggered by the wait
and see stance adopted by potential car buyers in April. However, there
are signs of a sales rebound in May following the conclusion of the
elections and is confident of selling 60,000 units," it said. "The
strong on-year volume gains were due to supply chain disruptions arising
from the flooding in Thailand in addition to the initial impact from
the tighter financing guidelines implemented by Bank Negara at the beginning of 2012.
"Executive director Datuk Dr Ang Bon Beng
has now been posted to oversee Tan Chong's business in Indo-China
reflecting management's priority to rejuvenate this element of Tan
Chong's operations," it said.
RHB
said Tan Chong remains optimistic on medium-term prospects citing the
declining interest rate environment coupled with the impending launch of
the Nissan Sunny (Almera) in June, manufactured at its newly
commissioned Danang plant, apart from hinting about another new model
that could straddle the A/B segment that offers value but avoids
competing head on with national car models.
On capital
expenditure, RHB Research said Tan Chong will spend more than RM700mil
where it includes buying the Kinabalu assembly plant while being hopeful
of securing another major assembly deal contract with a 30,000 unit
capacity yearly.
It also sets aside a sum to improve its existing
showrooms and plans to fork out RM133mil for a manufacturing facility
possibly in Myanmar.