Tan Chong expected to undergo turnaround in next two years

KUALA LUMPUR: Automotive company Tan Chong Motor Holdings Bhd is expected to remain in the red over the next two years, weighed down by persistently low plant utilisation and stiff competition in the automotive sector, analysts say.

Kenanga Research, following a meeting with the company, said that Tan Chong’s plants in Segambut and Serendah are running well below potential.

“Tan Chong indicated that sustained losses would persist for the next two years due to an expected under-utilisation rate at both of its local plants, which we estimate to be currently operating at 13%,” the research house noted.

Kenanga Research said the Segambut plant has the capacity to produce 20,000 vehicles annually, covering TQ Wuling light trucks, GAC vehicles and the planned TQ Wuling Bingo electric vehicle (EV), while the Serendah plant can manufacture 45,000 units of Nissan vehicles.

MBSB Research, meanwhile, said key takeaways from management point to a modest uplift, with utilisation expected to improve as production of the TQ Wuling Bingo begins at the Segambut plant next month ahead of its launch.

However, Kenanga Research said: “The EV market is highly competitive with intensifying price competition, which could further impinge on margins if Tan Chong fails to achieve optimal production volume.”

Looking ahead, Kenanga Research said two all-new Nissan models based on new technology are slated for the Malaysian market next year.

“New launches slated for next year may not live up to expectations, in our view, given a sea of competing new models in the market, especially Chinese EVs with low entry-level price points.”

The research house added that the lack of fresh models has already hurt performance, with local Nissan sales plunging 26% year-on-year in the first half of this year to 3,395 units despite buoyant overall car sales.

MBSB Research said market speculation points to the X-Trail and Serena as the two potential launches, based on rollouts in neighbouring markets.

“That said, we do not expect this to be a meaningful volume driver in the near term,” it noted.

Elsewhere, Kenanga Research said Tan Chong’s operations in Vietnam remain another drag. Its Danang plant, which has been producing the TQ Wuling N300P light truck since November 2023, is still underutilised.

The research house added that Tan Chong has plans to produce GAC vehicles there by next year, but this could be further delayed assuming weak local demand.

Tan Chong aims to lift plant utilisation to between 20% and 30%, compared with below 14% currently.

Kenanga Research warned that without an agreement for completely knocked-down (CKD) vehicles to take up capacity at its Danang plant, it expects Tan Chong to continue to record losses in Vietnam due to plant under-utilisation.

For the first half of this year, the Vietnamese market contributed 4% of group revenue, with operating losses narrowing to RM16.5mil from RM24.9mil a year earlier.

Kenanga Research reiterated its “underperform” call on Tan Chong with target price of 30 sen, valuing Tan Chong at an 86% discount to sector peers.