Tan Chong Motor - BUY - 28 Aug 2008

Tan Chong Motor - Another spectacular quarter (Results Note)



Price: RM1.53

Target Price: RM2.30

Recommendation: BUY



· Results above expectations. 1H08 net profit increased +254.5% to RM122.2m YoY, accounting for64.1% of our forecast and 64.1% market consensus respectively.

· 2Q08 net rose 222.8% YoY to RM68.1m, driven by strong unit sales (+89.5% YoY) especially the Nissan Livina in Dec 07 and Latio in Jun 07. Market share of Nissan vehicles increased to 5.5% from 3.7% YoY.

· QoQ, 2Q08 revenue up 3.2% but net improved 26.1% on the back of margin expansion to 11.0% (1Q08: 9.2%). Increased location of parts, higher average selling prices and rising economies of scale explains for the higher profitability. To note is that selling prices were increased by between 2-2.5% effective 1 Apr 08.

· Outlook remains positive with visibility backed by strong order back log of 16,000 units of Lavina and contribution from newly launched Sylphy which has been well received with bookings of 100 - 150 units / day . An extra shift added in June to double the capacity at Serendah plant to 2,400 units/month should help to alleviate wait list of 5-6 months depending on model.

· Forecast and BUY maintained but Target Price lowered to RM2.30 (previously RM2.74) based on lower industry PER of 8.0x. Trading at undemanding 5.3x and 4.6x PER for FY08 and FY09 respectively backed by strong NTA of RM1.99 per share makes it a steal at current levels.