New models solidify TCM’s growth

by **Cals** Mon 02 Sep 2013, 14:00

Business & Markets 2013

Written by CIMB Research

Monday, 02 September 2013 13:18

TAN CHONG MOTOR HOLDINGS BHD []
(Aug 30, RM6.98)
Maintain outperform at RM5.83 with a target price of RM8: Tan Chong Motors (TCM)’s second quarter ended June 30 of 2013 financial year (2QFY13) results were in line with our and consensus expectations, with first half (1H) of FY13 core earnings per share (EPS) coming in at 43% of our full year forecast. We expect a stronger second half following the recent launch of the Serena S-hybrid MPV and the Leaf in 3Q.

The full benefits of the yen’s depreciation should also be felt in 3Q as foreign exchange and RM1.3 billion of inventory have been hedged on a three-month rolling basis. There is no change to our EPS forecasts and revised net asset value-based target price which is pegged at 11 times FY14 price-earnings ratio (PER) on TCM’s auto earnings. The key catalyst is achieving milestones to reach TCM’s internal target of assembling 100,000 units a year. “Outperform” maintained.

TCM declared a special dividend of nine sen, bringing the total 1HFY13 dividend per share (DPS) declared to 15 sen. TCM will marginally beat our FY13 forecast DPS of 20 sen if it declares its normal six sen DPS in 2H. We expect the step-up in DPS to continue with a forecast 25 sen for FY14 and 30 sen for FY15.

The special dividend highlights management’s confidence in its operating environment and is a key catalyst, in our view, in endorsing TCM’s compelling growth and dividend story. We expect TCM to deliver a three-year 41% EPS compound annual growth rate, while offering a 4% to 5% yield at these levels.

Much of the 31% revenue growth in 1H was driven by sales of the Almera, which has pushed TCM into the No 2 position in the non-national car segment with 8.2% market share. The launch of the Serena hybrid MPV on July 23 should accelerate TCM’s performance with the first batch all sold out. The management is on track to meet its target of selling 2,000 units in 2HFY13.

TCM’s Vietnam plant broke even at the operating level with an 88% year-on-year increase in revenue in 1H following the launch of the Nissan Sunny. TCM’s positioning in Indochina and Myanmar will rerate TCM into a regional player over the long term. — CIMB Research, Aug 30

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This article first appeared in The Edge Financial Daily, on September 02, 2013.
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