The assembler and distributor of Nissan and Renault cars fell to 70.5 sen in morning trading, its lowest level since April 2004. It dipped to 70 sen on resumption of trade at 2.30pm, giving it a market capitalisation of RM470.4 million.
In a bourse filing last Friday, Tan Chong revealed its net losses widened to RM40.11 million for the second quarter ended June 30 (Q2 FY2024) from RM18.13 million a year ago as vehicle sales tumbled in the face of stiff competition.
Revenue for the quarter fell 12% year-on-year to RM545.1 million from RM619.2 million. For the first half (H1 FY2024), its net loss grew to RM55.83 million from RM23.2 million a year earlier, while revenue fell 10.5% to RM1.11 billion from RM1.24 billion.
The group has suffered losses for the last four financial years. For the year ended Dec 31, 2023 (FY2023), it posted a wider net loss of RM128.74 million from RM51.11 million in FY2022.
Given Tan Chong’s predicament, several research houses have “sell” calls on the stock and slashed their target price (TP).
Kenanga Research has cut its TP by 19% to 60 sen from 74 sen previously while RHB Research and Hong Leong Investment Bank (HLIB) reduced their TP to 65 sen.
Kenanga said the group’s first-half losses were wider than expectations. “Its H1 FY2024 losses almost doubled year-on-year (y-o-y) as the sales volume of its bread-and-butter Nissan vehicles continued to fall, and worsened by unfavourable forex movements.”
It also noted that first-half revenue plunged 11% on a 9% contraction in local Nissan vehicle sales volume to 4,602 units amid a highly competitive environment where competitors flooded the market with new models.
“On a brighter note, its financial services revenue rose 7%, we believe, due to its highly competitive hire purchase scheme. There was some contribution from its solar energy division,” it said in a note yesterday.
Things may get worse
RHB noted Tan Chong remains on a “loss-making streak” as sales volumes continue to drop due to weak demand for its models and lack of new models being launched.
“We continue to recommend investors to dispose their positions, as we think Tan Chong not only lacks positive catalysts, but might also undergo a further de-rating due to its continuing losses,” it said in a recent note.
RHB expects Malaysia’s total industry volume (TIV) to soften in 2024 and this does not bode well for Tan Chong. As it is, Nissan’s market share in Malaysia stood at only 1.15% (FY2023: 1.26%) as of end-July 2024.
“We think its sales volumes could continue to fall year-on-year.”
While the new Nissan Almera has been receiving strong orders, the research house said the local market continues to favour national cars due to better pricing.
“The other non-national carmakers also have new launches in the pipeline, leaving Nissan at a disadvantage. Given the lack of new model launches, we expect Tan Chong to continue losing ground to its rivals in terms of market share,” it added.
Sun sets on Tan Chong empire?
Tan Chong was founded by the late Tan Yuet Foh who set up a car distributorship in 1957 to realise his dream of building an automotive empire.
By the 1970s and early 1980s, the group was flying high as Nissan cars were a favourite of ordinary Malaysians. Perhaps the defining moment for Tan Chong was when the first national car – Proton Saga – was rolled out in 1985, which eventually overtook the ubiquitous Nissan Sunny.
Over time, the group’s fortunes have fallen precipitously as Malaysians’ preferences have shifted to other marques over the years.
Tan’s sons – Heng Chew, Eng Soon, and Eng Hwa – now helm Tan Chong. Heng Chew, the group’s president, is the only sibling still on the board.
Whether the 77-year-old Heng Chew can engineer a turnaround of Tan Chong’s fortunes remains to be seen.