Thursday 28 Mar 2024
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KUALA LUMPUR (Aug 22): CIMB IB Research has downgraded Tan Chong Motor Holdings Bhd from "hold" to "reduce" with a lower target price of RM1.65 and slashed its earnings per share (EPS) for the financial years ending Dec 31, 2016 to 2018 (FY16–18) by 82% to 127% to account for the automobile distributor's lower sales volume and higher cost of sales due to unfavourable foreign exchange (forex) movements.

Its analyst Mohd Shanaz Noor Azam said CIMB IB projects tough operating environments ahead for Tan Chong for the remaining year as profit margins will continue to be affected by higher cost of inventories.

Sales volume will be negatively affected by the increase in car prices implemented in April 2016. Nissan's sales volume saw a drop of 4% quarter-on-quarter while its 1HFY16 sales volume declined by 9%.

"The lack of new major model launches until 2018 puts Nissan off the radar as opposed to its competitors which are continuously launching new models," he said.

Mohd Shanaz said Tan Chong's second quarter ended June 30, 2016 (2QFY16) was below house and consensus expectations for FY16 core net profit of RM12.8 million and RM19.6 million, respectively.

"Stripping off forex gains and gains on derivatives, it slips into core net loss of RM33.6 million in 2QFY16 (US$8.37 million), taking the first half ended June 30, 2016 (1HFY16)'s core net loss to RM48.3 million.

"Tan Chong's profit margins have been affected by unfavourable forex movement, resulting in higher cost on inventories, and by aggressive promotional sales campaigns," he said.

On Friday (Aug 19), Tan Chong posted a net loss of RM14.58 million in 2QFY16 from a net profit of RM14.16 million a year ago.

Its earnings before interest, taxes, depreciation, and amortisation (EBITDA) was higher from its operating segments, it told Bursa Malaysia.

The Nissan-brand automobile distributor revealed revenue rose 8.7% to RM1.37 billion in 2QFY16, from RM1.26 billion a year ago.

The board declared an interim single tier dividend of one sen for the financial year ending Dec 31, 2016, payable on Sept 29.

"We switch from P/E to P/BV valuation in view of prolonged delivery risk. For exposure to Malaysian autos, we prefer Berjaya Auto Bhd due to Mazda's sustainable volume growth and the potential listing of its Philippines operations," Mohd Shanaz said.

At 11.49am, Tan Chong dipped one sen or 0.52% to RM1.92 on thin trade of 30,600 shares, with a market capitalisation of RM1.25 billion.

 

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