Hot Stock Tan Chong Motor falls 3.4% after zero-growth warning

by **Cals** Fri 16 May 2014, 02:09

Hot Stock Tan Chong Motor falls 3.4% after zero-growth warning

Business & Markets 2014

Written by Ahmad Naqib Idris Adzman Shah of theedgemalaysia.com

Thursday, 15 May 2014 12:36

KUALA LUMPUR (May 15): Tan Chong Motor Holdings Bhd’s (TCM) share price fell 3.4% after it warned of zero earnings growth for the year, following much weaker results for its first quarter ended March 31, 2014.

At 12.19 pm, TCM declined 19 sen or 3.4% to its day’s low of RM5.40, with some 266,200 shares done.

The counter was among the top losers on the exchange.

Yesterday, the group reported a net profit of RM41.5 million for 1QFY14, almost half that of RM84.1 million posted in 1QFY13.

Revenue for the quarter fell 12% year-on-year to RM1.26 billion from RM1.44 billion in the year before.

“The group is taking a cautious outlook of no growth with heightened competition for the rest of the year 2014,” TCM said in a statement to Bursa Malaysia yesterday when announcing its results.

Maybank Investment Bank Bhd today downgraded the stock to “hold” from “buy” and lowered its target price to RM5.25 from RM6.80.

The research house attributed the lower net profit for the quarter to weaker vehicle sales and a depressed EBITDA margin.

The research house said that TCM’s earnings were affected by intense price wars in the B-segment, which accounted for 50% of its total vehicle sales.

Its margins were affected by the discounts of up to RM5,000 per car, which was offered by the company to compete with new launches of Toyota Vios and Honda City in the market.

“The price war is likely to escalate as Hari Raya approaches. The peers’ Vios and City have started to offer RM2,000 to RM4,000 discounts each, intensifying competition,” said Maybank in a note today.

The research house has cut its earnings forecasts for Tan Chong FY14, FY15 and FY16 by 34%, 23% and 13% respectively.