Tan Chong forecast to stay in low gear for now
PETALING JAYA: With the challenges it is facing expected to persist, Tan Chong Motor Holdings Bhd has been downgraded to a 'sell' rating by Maybank Investment Bank Research (Maybank IB Research).
The research house expects the automotive group to record losses for this financial year (FY25) despite its return to the black with a RM4.14mil net profit in the first quarter of financial year ended March 31 (1Q25).
Revenue for 1Q25 declined slightly by 2% year-on-year to RM553mil, mainly due to continued weakness in the sales of Nissan vehicles, which fell by one-fifth to 1,811 units from a year ago.
On a positive note, operations in other regions like Vietnam, Cambodia, Laos and Myanmar posted growth, which partially offset the domestic sales decline.
However, Maybank IB Research expects challenges in the group's automotive segment to persist, underpinned by weak product appeal and intensifying competition.
'While, we maintain the stock's 38 sen target price based on 0.1 time FY25 book value, we have downgraded our call to 'sell', as we believe downside risks have increased following the recent rally in the share price.'
Meanwhile, MIDF Research said Tan Chong's efforts to expand its product portfolio may not translate to meaningful volume contributions from the newer marques in the near term as building brand awareness will likely take time.
Thus, it expects the group to stay loss-making. MIDF has a 'sell' rating and 34 sen target price on the stock.
Hong Leong Investment Bank Research (HLIB Research) expects some improvement in coming quarters, driven by the recent appreciation of the ringgit.
Still it is cautious about the group's outlook because of stiff market competition despite the new launches planned.
According to HLIB Research, the launch of new Kicks sport utility vehicle last December is expected to improve group sales in Malaysia.
Tan Chong has also started exporting the Serena multi-purpose vehicle to Thailand and recently signed a collaboration agreement with SAIC GM Wuling Automobile to locally assemble the Tan Chong-branded TQ Wuling Bingo electric vehicle (EV), an affordable entry-level compact EV targeting value-driven and urban commuters.
'Management also expects improvements in the Vietnam market, following increasing the introduction of new GAC models into the market.
'Nevertheless, we remain cautious about the group's domestic market outlook, due to the ongoing stiff competition in various segments, as both national marques and non-national original equipment manufacturers introduce new attractive models.
'Recent ringgit appreciation is expected to improve the cost structure of its Malaysia operations' said HLIB Research.
The research house has a 'hold' rating on the stock, with a higher target price of 42 sen from 35 sen.
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