Maybank downgrades Malaysia's Tan Chong Motor to ‘sell' amid widening losses, competition
[SINGAPORE] Maybank Investment Bank has downgraded Malaysia's Tan Chong Motor (TCM) to 'sell', from 'hold' previously, amid widening losses, weak product appeal and intensifying competition.
Despite the downgrade, Maybank maintained its target price for the Bursa-listed company at RM0.38, based on an unchanged 0.1 times its forecast book value for FY2025.
TCM is the franchise holder for Nissan in Malaysia and Indo-China, as well as Renault in Malaysia and MG in Vietnam.
In a report on Monday (May 26), Maybank analyst Loh Yan Jin cited increased downside risks following a recent rally in TCM's share price as the reasons for downgrading its call on the automotive company. The stock has climbed nearly 60 per cent from its 52-week low of RM0.29 to RM0.46 in recent months.
'We believe downside risks have increased following the recent rally in share price,' Loh said.
TCM reported a core net loss of RM44.5 million (S$13.5 million) for the first quarter of 2025, more than double the RM18.3 million loss recorded in the same period a year earlier.
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Commenting on TCM's widening year-on-year losses, Loh said the latest results were in line with Maybank's full-year forecast of a RM147.3 million loss, but came in below the consensus estimate of a RM129.4 million loss.
Revenue for Q1 2025 slipped 2 per cent to RM553 million, weighed down by continued weakness in Nissan sales, which plunged 21 per cent year on year to 1,811 units.
However, Loh said the weakness in Malaysia was partially offset by growth in TCM's overseas operations, including Vietnam, Cambodia, Laos and Myanmar.
On a quarter-on-quarter basis, TCM's Q1 2025 revenue rose 8.2 per cent from RM511.2 million in Q4 2024, supported by a 22 per cent increase in Nissan sales in Malaysia and higher vehicle assembly and manufacturing activity.
Loh attributed this to a rebound from 'seasonally softer' year-end sales, which had been affected by intense promotions and competing model launches.
As a result, core net loss for Q1 2025 narrowed by 29 per cent to RM44.5 million from RM62.9 million in Q4 2024.
'Looking ahead, we expect challenges in TCM's automotive segment to persist, underpinned by weak product appeal and intensifying market competition,' Loh said.
'Soft consumer sentiment and unattractive model launches will further weigh down its earnings.'
A key re-rating catalyst, she added, would be stronger sales from new product launches or contract assembly deals, but 'visibility remains limited for now'.
'Improved operational efficiencies and better inventory management could also help enhance margins and profitability,' she said.
As at 4 pm on Tuesday, shares of TCM are trading RM0.455.
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