Tan Chong prospects in Vietnam brighten


Kenanga Research said it is cautious on Tan Chong’s prospects.

PETALING JAYA: The right to distribute GAC Motor International Co Ltd’s vehicles in Vietnam secured by Tan Chong Motor Holdings Bhd will help to fill the gap left by the termination of its MG vehicle distributorship in that country in June last year, says Kenanga Research.

The exclusive three-year agreement of distribution and service with GAC will see Tan Chong importing, distributing and selling GAC vehicles and spare parts, as well as provide after-sales services for GAC vehicles in Vietnam.

According to Kenanga Research, China-based GAC group offers many models, including sedans, sport-utility vehicles and multipurpose vehicles, and has produced and sold more than two million vehicles from its manufacturing plants in Guangzhou, Xinjiang, Yichang and Hangzhou, in China.

“We are positive as this will help to fill in the gap left by the termination of its distributorship for MG vehicles in Vietnam in June 2023.

“However, contributions during the initial years will be immaterial as it takes time to build the brand and volume,” said Kenanga Research in a report.

The research firm said that without a concrete completely-knocked-down agreement to utilise its Danang plant, Tan Chong could continue to record losses in Vietnam.

“For the nine-month period of financial year 2023 (9M23), Tan Chong recorded a higher loss of RM32.4mil in Vietnam from a loss of RM10.9mil in 9M22.

“Based on the previous brand’s vehicles distribution agreement, Tan Chong is expected to sell GAC’s completely built-up vehicles at a rate of about 1,000 units annually in Vietnam for the first year and gradually ramping up thereafter,” the research house added.

It noted that in the third quarter of FY23, the automotive group only sold 23 units of vehicles in Vietnam due to the termination of the MG distribution agreement by its principal, SAIC Motor International Co Ltd.

“The auto market in Vietnam is quite small compared with Malaysia due to its unstable pricing policy and lower purchasing power. Automakers under the Vietnam Automobile Manufacturers’ Association sold just over 300,000 units in 2023 versus Malaysia at 799,000.”

Kenanga Research said it is cautious on Tan Chong’s prospects and reiterated its “underperform” rating on the stock with a 75 sen target price.

The research house said the group has an insignificant 1% share of the total industry volume in Vietnam.

It lacks new launches while competitors have successfully launched all-new models.

It also has been unable to raise prices to pass on rising production costs, especially with the weakening of the ringgit against the US dollar.

Follow us on our official WhatsApp channel for breaking news alerts and key updates!
   

Next In Business News

China set to keep lending benchmark LPRs unchanged in April
Gold rises as safe-haven appeal boosted by Israel's attack on Iran
MKH Oil Palm IPO oversubscribed by 8.4 times
Bank Negara adds four companies to Financial Consumer Alert list
Nissan cuts annual operating profit estimate by 14.5% on lower sales
Oil surges as reports of Israeli strike on Iran roil markets
Bitcoin slides below US$60,000 on reports Israel strikes Iran
Stocks sink, oil jumps after Israeli attack on Iran
Yinson Production successfully places US$500mil bond issue
EG Industries expands partnership with US-based R&D firm

Others Also Read