MIDF Research upgrades Tan Chong, target price RM1.30

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KUALA LUMPUR (March 5): MIDF Amanah Investment Bank Bhd Research has upgraded Tan Chong Motor Holdings Bhd to “buy” at RM1.30 with an unchanged target price of RM1.30 and said the stock has approached its earnings inflection point.

In a note today, the research house said Tan Chong revealed its plans to launch the new Nissan Almera in the second half of the financial year 2020 (2HFY20) as the model is long overdue for replacement, having been in the market for eight years.

“Details on spec and pricing [are] not forthcoming yet, but the current generation Almera is priced at RM69,888 to RM79,888. At its launch back in 2012, management was targeting monthly volumes of 1K-2K units/month, though actual volumes registered in the initial months of launch were much better at >2K,” it said.

The research house said the current generation Almera will turn into a barely profitable model given the significant depreciation of the ringgit.

“However, costing for the new Almera is likely to have been negotiated closer to current forex levels, which should improve the yields generated from the model, though we would not rule out some increase in end-pricing.

“We forecast an 8% year-on-year Nissan total industry volume growth off the weak base of 21,239 units in FY19. Other possible new models include the Nissan Kicks (B-segment SUV) and the new Sylphy (C-segment sedan), but these have yet to be factored into our projections. The former, in particular, fills an important gap in Tan Chong’s model mix,” said MIDF.

After the group’s weak 4QFY19 results, Tan Chong’s share price has retraced significantly as it has corrected by 30% in the past 12 months.

At 9.50am, Tan Chong shares were unchanged at RM1.14, valuing the group at RM743.79 million.