Monday 22 Jul 2024
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This article first appeared in The Edge Malaysia Weekly on November 7, 2022 - November 13, 2022

AUTOMOTIVE assembler and distributor Tan Chong Motor Holdings Bhd (TCMH), which carries marques such as Nissan and Renault, has seen a significant reduction in sales over the years.

In 2016, a total of 40,706 Nissan vehicles were sold in Malaysia, giving the brand a 7% market share of the year’s total industry volume (TIV) and ranking it the fifth largest selling marque. Nissan was the third-largest marque selling foreign vehicles after Honda and Toyota.

Five years later, in 2021, Nissan managed to sell only 12,287 vehicles — 8,732 passenger cars and 3,555 commercial vehicles.

The 69.81% drop — auto sales were adversely impacted by the Covid-19 pandemic and the ensuing lockdowns — pushed it to sixth position and reduced its market share to 2.41% of 508,911 TIV.

In the foreign marque segment, in addition to Honda and Toyota, Mitsubishi has also overtaken Nissan.

A resurgent Proton Holdings Bhd and Mazda’s increased popularity also added to Nissan’s woes.

Asked to comment on its declining sales, TCMH replied, “We are unable to participate (in an interview) as we are tied up with other work and business commitments.”

For the first nine months of 2022, Nissan sold 10,983 units or 2.13% of 514,868 vehicles sold.

The industry appears optimistic about demand for new vehicles. In July, the Malaysian Automotive Association (MAA) revised its 2022 TIV sales forecast to 630,000 units from 600,000 previously, up from 508,911 in 2021.

Much of the MAA’s optimism stems from the performance in the first half as TIV grew 33% to 331,386 units from 249,178 units over the same period in 2021. Some analysts are confident that TIV may even exceed 2015’s record of 667,000 vehicles.

TCMH has two assembly plants in Malaysia, one in Serendah, Selangor, and an older one in Segambut, Kuala Lumpur. In Vietnam, it has two assembly plants in Da Nang and in Yangon, Myanmar, it has one plant that largely assembles Nissan and Renault and a few other smaller brands.

Other than assembly, TCMH’s main revenue generator in Malaysia is its franchise for the distribution and sale of Nissan cars, which it has held since 1957. More recently, in 2003, TCMH commenced distributing and assembling Renault vehicles in Malaysia and providing after-sales support.

In a nutshell, TCMH has been trying to replicate its Malaysian business model in the Asean region. However, it has suffered losses for four out of the last six financial years.

Auto analyst with Maybank Investment Bank Liaw Thong Jung tells The Edge, “TCMH’s profits are offset by losses from regional operations … the issues (in earnings) are with margins and the supply chain. This year is a reset year for TCMH.” He has ascribed a target price of RM1.35 for TCMH — a 20.5% premium to its close last Thursday of RM1.12.

Nevertheless, the current year has not started out well for TCMH as it suffered a net loss of RM13.28 million from RM1.58 billion in revenue for the six months ended June.

In the corresponding period a year ago, TCMH suffered a net loss of RM14.47 million on the back of RM1.23 billion in turnover.

As at end-June, TCMH had cash and cash equivalents of RM571.96 million, current liabilities of RM1.13 billion and long-term debt commitments amounting to RM300 million.

Its reserves stood at RM2.45 billion and retained earnings was RM1.66 billion. Net asset per share was RM4.23.

In announcing its 2QFY2022 results on Aug 29, TCMH says, “Despite the lingering uncertainties around the world, Malaysia’s gross domestic product expanded by 8.9% in the second quarter of 2022 and the full year’s forecast of 5.3% to 6.3% of GDP growth in 2022 remains intact. With the reopening of borders, the nation’s economy is projected to improve with expected recovery in domestic demand and expansion in exports.”

“However, there are further downside risks due to the continuous global supply chain disruptions arising from the on-going geopolitical tensions in Europe, rising inflation and interest rates across the globe and the contagion effects of a slowdown in China’s economy,” it adds.

Liaw forecasts that TCMH will achieve its vehicle sales forecast of 18,400 units in 2022. “We expect a stronger 2H2022 as the strength of vehicle sales in 2QFY2022 (4,000 units) is set to improve into 3QFY2022/4QFY2022 respectively.”

He expects TCMH to return to the black this year. In a late-August report, he projects that the company would chalk up a net profit of RM45.7 million from RM3.43 billion in revenue for FY2022.

TCMH’s largest shareholder is Datuk Tan Heng Chew, who has a 49.53% stake in the company, both directly and via his flagship, Tan Chong Consolidated Sdn Bhd.

Tan and Tan Chong Consolidated also have a 49.32% stake in auto parts manufacturer APM Automotive Holdings Bhd, and 48.51% in Warisan TC Holdings Bhd, which has interests in car rentals, bus transport, and heavy equipment and consumer products.

At last Thursday’s close, TCMH’s market capitalisation was RM730.4 million.

 

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