KUALA LUMPUR: Kenanga research maintained its outperform rating on Tan Chong Motor
Bhd with an unchanged target price of RM2.30 as 9M18 core profit after tax and minority interest of RM69mil came in above expectations due to higher sales and margin.
"This marks the highest YTD and single quarter earnings since 2014," said Kenanga.
The research house said it is changing its valuation method to price-earnings valuation from price-book value valuation for a better comparison within the automotive space and to reflect the strong turnaround in profitability.
Revenue for the nine months to Sept 30 surged 13% despite flat growth in Nissan vehicles sales as Tan Chong is focusing more on higher margin models of its popular Nissan Serena, Nissan X-Trail and Nissan Navara.
"TCHONG has shifted its strategy from volume-play to margin-play as it is focusing more on product mix skewed towards higher-margin models, thus, car sales volume will only be able to register low single-digit growth as traditionally, the out-going Nissan Almera contributed 30% of its total car sales," said Kenanga.
The research house noted that the launch of the all-new 2018 Nissan Serean S-Hybrid is expected to sustain var volume.
In 2019, Tan Chong will launch all-new 2nd generation exlectric vehicle Nisssan Leaf.
The group is also expanding its Indochina operations given the larget market volume and improving its profitability with margin expansion from the high-margin car models, said Kenanga.
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