It was the fourth consecutive year of net losses for the assembler of Nissan and Renault vehicles. For the fourth quarter (Q4 FY2023), Tan Chong suffered a net loss of RM54.85 million from RM44.71 million in the corresponding quarter of FY2022.
In a note today, AmInvestment Bank (AmInvest) said the Q4 FY2023 net loss was “weaker than our estimate and consensus”. It anticipates the group will still be loss making in FY2024, but it lowered its FY2024F-2025F losses by 18% and 48%.
It expects a more challenging 2024F for the company due to cost of living challenges, ringgit-US dollar volatility, and many new car model launches by competitors, especially Chinese car models.
It noted the management’s “reluctance to provide guidance” on sales targets, new model line-ups, backlog orders, utilisation rates and solar feed-in tariff means low earnings visibility for its forecasts.
Its 51%-owned unit TC Sunergy Sdn Bhd, which owns and operates a 2MW large-scale solar photovoltaic plant in Serendah, Selangor, on a 25-year power purchase agreement (PPA), commenced operation in January 2024.
AmInvest has “sell” and “underweight” calls on the stock, and lowered its target price to 80 sen per share from 84 sen previously.
Tan Chong ended 2 sen or 2% lower at 98 sen today, valuing the group at RM655.23 million.
‘Insignificant’ market share
Meanwhile, Kenanga Research has an “underperform” call on Tan Chong and a TP of 72 sen per share.
It remains cautious on Tan Chong due to its “insignificant 1% share” of the total industry volume, lack of new launches, and inability to raise prices to pass on rising production cost with the weakening of the ringgit.
“Tan Chong’s Nissan Almera Kuro Edition, launched in January 2024, with only new body kits on a four-year old model, pales in comparison to rivals’ attractive new models,” it said.
It also sees the group’s operations in Vietnam will continue to be loss-making due to low utilisation. Tan Chong had started producing the TQ-Wuling Light Truck N300P at its idle Danang plant since November 2023.
“It hopes to boost utilisation at its plant in Vietnam to between 20% and 30% during the first year, versus less than 5% at present.
“Without a concrete CKD (completely knocked down) agreement to fill the capacity of its Danang plant, we expect Tan Chong to continue to record losses in Vietnam,” it said, noting in FY2023 it recorded a higher loss of RM40.1 million in Vietnam from a loss of RM8.4 million in FY2022.
However, it will endeavour to make the best of its exclusive rights to distribute King Long buses, GAC vehicles, and to produce other brands in the next few years, noted Kenanga.
The story of Tan Chong dates back to 1957, when its founder, the late Tan Yuet Foh, set up a car distributorship to realise his dream of building an automotive empire in Malaysia. The company was listed on the then Kuala Lumpur Stock Exchange in 1974, in an era when the group was flying high and Nissan cars were the favourite of ordinary Malaysians.
Tan’s sons – Heng Chew, Eng Soon, and Eng Hwa – now control Tan Chong, a conglomerate that assembles cars, makes parts, sells heavy machinery and operates Nissan and Renault dealerships.
Heng Chew, the group’s president, is the only sibling still on the board. Interestingly, Heng Chew’s son Anthony co-founded ride hailing giant Grab, which now has a market capitalisation of US$12 billion (RM56.8 billion).