Tan Chong to do an about-turn

PETALING JAYA: Analysts are turning cautious on Tan Chong Motor Holdings Bhd’s prospects, given the group’s subdued results for the financial year 2024 (FY24) dragged by a weak sales volume and margins.

The group’s sales volume was hit by competitive markets with aggressive launches by various original equipment manufacturers (OEMs) and lack of new attractive models. Its margins also were affected by rising raw material and operating costs.

MIDF Research, in a report, said it remained cautiously hopeful about the company’s outlook, but anticipated challenges, with a profit turnaround remaining out of sight for now.

The research house expected lower vehicle sales, with Tan Chong’s FY24 core loss after tax and minority interests underperforming expectations.

Meanwhile, Tan Chong has exported the locally assembled Nissan Serena S-Hybrid to Thailand for the first time in December 2024. While volume details were not disclosed, the research house said exports were reported to be in line with expectations.

Tan Chong’s management indicated ongoing discussions with the principal about expanding into new markets and models.

“The order volume for the newly launched Nissan Kicks e-Power (B-segment SUV) in December 2024 was also not disclosed, although it was highlighted that customer response has been positive, and there are no plans to convert it to completely knocked-down (CKD),” noted MIDF Research.

In Vietnam, to fill the gap left behind by the MG distributorship’s termination in mid-2023, the focus will shift to expanding GAC Motor, with three models launched in 2H24.

“While these models will contribute for the full year ahead, we expect a gradual recovery with minimal near-term impact, as brand-building efforts may take time,” said the research house.

At the same time, Tan Chong is expected to launch several new models in Malaysia and Vietnam this year.

MIDF Research said Tan Chong is in negotiations for the CKD conversion of GAC models, as utilisation of its Danang plant in Vietnam remains below expectations.

In Malaysia, the Segambut plant, which is one of two facilities, has begun local production of the GAC GS3 Emzoom, and the company is exploring regional export opportunities.

The research house has also adjusted Tan Chong’s FY25 and FY26 forecast loss projections to widen by 15% and 16% respectively, in line with a downward revision in sales volume by 6% and 5%.

The research house, which is “neutral” on the stock, has revised downward its target price (TP) to 34 sen from 36 sen previously.

Meanwhile, Hong Leong Investment Bank (HLIB) Research expected an mprovement from FY25, with new Nissan e-Power models, GAC distribution starting in Vietnam, along with the appreciation of the ringgit.

The Malaysian market is competitive due to attractive new launches from numerous rival OEMs, said the research house in note to clients.

However, the recent new launch of e-Power Nissan Kicks in 4Q24 and new GAC models in Vietnam are expected to help improve the group’s sales volume.

That said, other Indochina markets are anticipated to stay weak in 2025, said HLIB Research.

“We believe Malaysia operations will gain from the appreciation of the ringgit to the US dollar in 2025,” it added.

HLIB Research said Tan Chong’s management is expecting favourable sales volume in 2025, potentially turning around Vietnam operations. As higher volume takes place in 2025, management may explore CKD options with GAC principal.

Broadly, markets in Myanmar, Laos and Cambodia remained weak due to deterioration in consumer sentiment. HLIB Research has maintained a “hold” call on Tan Chong with a TP of 35 sen per share.