Analyst optimistic about Tan Chong Motor Holdings Bhd (4405:KL) IndoChina operations and new model launches

Analyst optimistic about Tan Chong Motor Holdings Bhd (4405:KL) IndoChina operations and new model launches

Analyst optimistic about Tan Chong Motor Holdings Bhd (4405:KL) IndoChina operations and new model launches

RHB Research seems optimistic on Tan Chong Motor Holdings Bhd’s (Tan Chong) improvement in its Indochina operations with the introduction of several new models in the domestic market.

RHB Research said Tan Chong’s Indochina operations continue to show good progress with increasing sales volume, while it considers introducing new models to refresh its product offerings.

“The Indochina operations have started to show tangible improvements. Further traction would help Tan Chong diversify its earnings away from the competitive and saturated domestic market. Potential new model launches are another earnings driver,” it said in a research report recently.

It added that the Indochina business registered higher sales volume year-on-year with Vietnam sales growing 1.0 per cent, thanks to consistent sales of the Nissan Sunny.

Laos and Cambodia sales volumes also grew 56 per cent and 64 per cent to 218 units and 176 units after the introduction of the Nissan Terra and Nissan Navara Premium Plus at the end of 2018 while Myanmar sold 432 units in the first-quarter of this year.

RHB Research said Tan Chong’s potential new contract assembly at its Vietnam plant in Danang would support future growth.

“Tan Chong is in the midst of increasing its capacity in Myanmar as production there is operating at a full run-rate of 1,300-1,400 units per annum. The first phase of expansion to increase capacity to 5,000 units pa should be completed in second half of 2019.”

It said Tan Chong was studying the viability of bringing the Nissan Almera, Nissan Kicks and Nissan Sylphy to the Malaysian market.

If it materialises, it said Tan Chong might probably starting with the Almera, followed by Kicks and Sylphy from 2020 onwards.

“Its strategy to continue to prioritise profitability over sales volumes would influence the pricing and marketing strategies of the new models.

“It will be launching the Nissan Leaf EV in 2H19 but sales volume will likely be immaterial. The new X-trail facelift is seeing stiff competition from Proton X70 and sales could fall short of expectations.

It sold 5,873 units of the previous X-trail in 2018, about 20 per cent of total Nissan/Renault sales.”

RHB Research also cut Tan Chong’s target price to RM1.85 from RM2.00 on the lower financial year ending December 31, 2019 earnings, based on unchanged target earnings per share of 11 times due to lack of product pipeline visibility.

“We trim our 2019-2021 forecasts by 6.5 per cent and 6.7 per cent after reducing our sales volume assumptions, expecting stiff competition especially from national brands.

“The deterioration of the ringgit against the US dollar and delays of new model launches could also impact profitability.”

It said the toned down earnings forecasts slightly to reflect stiff competition, especially from the national brands with foreign exchange remains a key risk.

Overall, the bias in prices is: Upwards.

The projected upper bound is: 1.65.

The projected lower bound is: 1.53.

The projected closing price is: 1.59.

Candlesticks

A black body occurred (because prices closed lower than they opened).
During the past 10 bars, there have been 2 white candles and 7 black candles for a net of 5 black candles. During the past 50 bars, there have been 15 white candles and 20 black candles for a net of 5 black candles.

Three black candles occurred in the last three days. Although these candles were not big enough to create three black crows, the steady downward pattern is bearish.

Momentum Indicators

Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.

Stochastic Oscillator

One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 10.5263. This is an oversold reading. However, a signal is not generated until the Oscillator crosses above 20 The last signal was a sell 11 period(s) ago.

Relative Strength Index (RSI)

The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 46.46. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a sell 54 period(s) ago.

Commodity Channel Index (CCI)

The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is -145.This is an oversold reading. However, a signal isn’t generated until the indicator crosses above -100. The last signal was a sell 10 period(s) ago.

MACD

The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a sell 4 period(s) ago.

Rex Takasugi – TD Profile

TAN CHONG MOTOR closed up 0.010 at 1.590. Volume was 29% below average (neutral) and Bollinger Bands were 55% narrower than normal.

Open High Low Close Volume___
1.600 1.600 1.580 1.590 54,500

Technical Outlook
Short Term: Oversold
Intermediate Term: Bullish
Long Term: Bullish

Moving Averages: 10-period 50-period 200-period
Close: 1.61 1.59 1.58
Volatility: 15 24 34
Volume: 74,920 76,946 63,188

Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.

Summary

TAN CHONG MOTOR is currently 0.4% above its 200-period moving average and is in an upward trend. Volatility is relatively normal as compared to the average volatility over the last 10 periods. Our volume indicators reflect moderate flows of volume into TNCS.KL (mildly bullish). Our trend forecasting oscillators are currently bullish on TNCS.KL and have had this outlook for the last 14 periods.

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