KUALA LUMPUR: Tan Chong Motor Holdings Bhd (TCMH) is expected to remain in the red for the remainder of the year due to lower margins, unfavourable sales mix and lower sales volume.
CGS-CIMB Research has cut its financial year 2021 (FY21)-23 earnings per share (EPS) as the auto company expect a challenging second half (2H) of 2021 given economic uncertainties amidst rising positive Covid-19 cases in Malaysia and the Indochina region.
"We project sales volume in Malaysia to gradually improve from August onwards as the government eases the restrictions on economic activities on the back of the rising Covid-19 vaccination rate in the country and the ongoing sales tax holiday.
"Meanwhile, we expect sluggish sales from Indochina due to ongoing lockdown measures imposed to contain the Covid-19 pandemic, and this could offset its potential recovery in the Malaysia market in 2H 21," the research firm said in a note today.
On quarter-on-quarter (QoQ) earnings, TCMH revenue grew 7.6 per cent in the second quarter (Q2) FY21 to RM638 million due to higher sales delivery from Malaysia and Vietnam, especially following the launch of the Navara pick-up truck facelift in April.
Total sales volume in Malaysia grew 11 per cent QoQ in Q2 FY21.
However, this was partially offset by weaker sales from the Cambodia, Laos and Myanmar markets following lockdowns imposed by the respective governments to contain Covid-19, CGS-CIMB Research noted.
Despite higher sales, TCMH slipped into a net loss of RM22.2 million in Q2 FY21 against RM7.7 million net profit in the first quarter (Q1) FY21.
The research firm noted that it attributed the loss to unfavourable sales mix and higher opex incurred during the quarter.
Stripping out exceptional items, such as RM5.4 million provision for receivables and RM10.4 million loss on derivatives, TCMH posted RM11 million net loss in Q2 FY21 against RM6 million net profit in Q1 FY21.
Nissan's sales volume in Malaysia rose 31 per cent year-on-year (YoY) to 5,755 units in the first half (1H) of 2021, attributed to stronger sales contribution mainly to the new Almera Turbo and Navara, which were launched in the fourth quarter (Q4) 2020 and Q2 2021, respectively.
However, this was partially offset by wider losses in Cambodia, Laos and Myanmar. Overall, TCMH registered a narrower net loss of RM4 million in 1H 2021 against RM23 million in 1H 2020.
"We keep our 'Reduce' rating on the stock with a lower target price of RM0.99 as we see a challenging earnings recovery outlook for the company due to a lack of visibility on new model launches beyond 2H 2021.
"This added to the weaker prospects from its overseas operations following the termination of its Nissan distributorship in Vietnam and uncertainty due to the political situation in Myanmar," CGS-CIMB Research said.