KUALA LUMPUR: Tan Chong Motor Holdings Bhd's earnings are projected to remain weak in the next quarters due to the expiration of the sales and service tax (SST) exemption and the country's continuous tough market competitiveness.
Hong Leong Investment Bank (HLIB) Research said with the ending of SST exemptions deliveries by the end of March 2023, it expects overall sales for Tan Chong's Malaysia operation to slow down further in coming quarters.
The bank said this is mainly due to a lack of interesting new models and marketing activities.
"Management is committed to avoiding direct pricing competitions with other OEMs and remains dependent on its core models (Almera, Serena Hybrid, and Navara).
"Management has recently launched two new electric vehicles (EV) models, namely Nissan Leaf and Renault Zoe, taking advantage of the extension of tax exemption of EVs in Malaysia," it said.
Meanwhile, HLIB Research said in Vietnam, it expects sales to deteriorate following the termination of distributorship for MG models effective June 30, 2023, which will further prolong the losses in the market.
"Other Indochina markets remain relatively weak due to political uncertainty in Myanmar and high inflationary costs in Laos and Cambodia," it said.
Tan Chong reported a net loss of RM10 million for the first quarter (Q1) ended March 31, 2023.
HLIB Research deems the result below the firm's FY23 expectation of a net profit of RM12.2 million and a consensus net loss of RM8.9 million.
"We cut Tan Chong's earnings forecast for FY23 to a net loss of RM35.0 million from a net profit of RM12.2 million and FY24 to a net loss of RM30.2 million from a net profit of RM59.0 million.
"We only expect the group to potentially turn around in FY25 to a net profit of RM45.1 million.
"We maintain "Sell' on Tan Chong with a lower target price of 70 sen from 72 sen," it added.