PP 7767/09/2010(025354)

27 May 2010
RHB Research
Malaysia Corporate Highlights Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

R e su l ts N o t e
27 May 2010
MARKET DATELINE

Tan Chong Motors Share Price

Fair Value
:
:
RM3.83
RM5.26
Steady Start To The Year Recom : Outperform
(Maintained)

Table 1 : Investment Statistics (TCHONG; Code: 4405) Bloomberg: TCM MK

Net Net
FYE Turnover profit EPS Growth PER C.EPS* P/NTA P/CF ROE Gearing GDY
Dec (RMm) (RMm) (sen) (%) (x) (sen) (x) (x) (%) (x) (%)
2009 2,856.9 152.3 22.7 (24.9) 16.9 1.8 12.9 10.7 0.1 2.3
2010f 3,708.3 262.0 39.0 72.0 9.8 35.0 1.6 8.3 16.1 0.2 3.0
2011f 4,114.7 304.5 45.3 16.2 8.5 42.0 1.4 7.3 16.1 0.2 3.1
2012f 5,598.5 452.4 67.3 48.6 5.7 46.0 1.1 5.1 19.8 0.1 3.4
Main Market Listing / Non-Trustee Stock / Non-Syariah Approved Stock By The SC * Consensus Based On IBES

RHBRI Vs. Consensus

♦ 1QFY12/10 results in line. 1QFY12/10 results were largely in line with Above
our and market expectations, accounting for 24.9% and 27.9% of our In Line
full-year forecast and market consensus respectively. Below

♦ Improved qoq performance. On a qoq basis, 1QFY12/10 earnings and Issued Capital (m shares) 672.0
Market Cap(RMm)
revenue grew by 55.0% and 20.9% respectively on the back of: 1) 2,573.8
Daily Trading Vol (m shs) 0.9
Stronger unit sales growth of 7.7% for Nissan (vs. -2.6% in 4QFY12/09);
52wk Price Range (RM) 1.45.-5.20
2) strengthening of RM against US$ and JPY, lowering CKD cost; and 3)
Major Shareholders: (%)
improved consumer sentiment towards premium products. Moreover, on a Tan Chong Consolidates 45.6
qoq basis, 1Q operating margin increased 4.8%-pts to 10.8% given: 1) Nissan Motor Co Ltd 5.6
hgiher utilisation rate for its Serendah plant; and strengthening of RM EPF 5.3
against JPY.
FYE Dec FY10 FY11 FY12
♦ Outlook. We expect the company to register a stronger growth in EPS chg (%) - - -
Var to Cons (%) 11.4 7.9 46.4
2HFY12/10 on the back of: 1) ramp-up production in the Serendah plant
from under 2,000 units per month to 3,000 units per month by Oct 10; PE Band Chart
and 2) introduction of a new model in the D-segment in 4QFY12/10.
Longer term, we expect the company to register stronger unit sales
growth stemming from economic recovery and improvement in consumer PER = 15x
PER = 12x
sentiment. PER = 9x
PER = 6x

♦ Key risk. 1) Lower car sales arising from slower-than-expected economic

recovery; and 2) Weakening of RM against US$ and Yen.

♦ Forecasts. We are not changing our forecasts for now. However, we

Relative Performance To FBM KLCI
believe there is potential upside to our FY10-12 earnings projections as
Tan Chong is expected to introduce A and B segment models by end-
Tan Chong
2011.

♦ Investment case. Our indicative fair value is maintained at

RM5.26/share based on 14x FY10 EPS. We reiterate our Outperform call
on the stock with potential re-rating catalysts of: 1) higher-than-expected FBM KLCI
sales of its A and B segment cars; and 2) earlier-than-expected earnings
contribution from its regional expansion.

Wong Chin Wai

(603) 9280 2158
Please read important disclosures at the end of this report. wong.chin.wai@rhb.com.my

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 27 May 2010

Table 2: Earnings Review

FYE Dec 1Q09 4Q09 1Q10 qoq Yoy 3M09 3M10 yoy Comments
(RMm) (%) (%) (%)
Revenue 692.9 720.2 870.4 20.9 25.6 692.9 870.4 25.6 Higher qoq and yoy due to
stronger unit sales of Nissan
(+7.7% qoqo and +20.8% yoy) .
IMPORTANT DISCLOSURES
EBIT 51.3 43.4 93.6 115.8 82.7 51.3 93.6 82.7 EBIT margins improved qoq and
yoy and
This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI dueRHB to: Investment
1) higher utilisation
Bank Berhad
(previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as mayrate for its Serendah
be permitted plant;
by applicable law.and 2)
The
opinions and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and
strengthening of RM againstmay differ
JPYor
be contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptionsand andUS$.
criteria. This report is not to be
construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any
manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons
Interest exp time to time
may from (5.8) (6.3) in the(6.9)
have an interest 10.3
securities mentioned by this18.1
report. (5.8) (6.9) 18.1
Interest inc 3.0 5.7 1.6 (71.7) (46.2) 3.0 1.6 (46.2)
This report does not0.2
Associates provide individually
(0.5) tailored 0.6investment advice. It has
(222.7) been prepared
268.8 0.2 without regard
0.6 to the268.8
individual financial circumstances and objectives
of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate
EI particular investments
0.0and strategies,
0.0 and encourages
0.0 n.m n.m 0.0 0.0 n.m
investors to seek the advice of a financial adviser. The appropriateness of a particular investment or
Pretax profit
strategy 48.6
will depend on an investor’s 88.9
42.3individual 110.1
circumstances 83.1 Neither48.6
and objectives. RHBRI, RHB88.9 83.1
Group nor any of its affiliates, employees or agents accepts
any liability for any loss or damage arising out of the use of all or any part of this report.

Taxation (6.7) Persons

RHBRI and the Connected (the “RHB(24.0)
(0.3) Group”) are >100 255.6 trading,
engaged in securities (6.7) (24.0)
securities brokerage, 255.6and financing
banking Higher due to improved
activities as well asprofit and
providing
lower
investment banking and financial advisory services. In the ordinary course of its trading, brokerage, banking and financing reinvestment
activities, allowance
any member of the RHB
MI Group may at any (0.2) (0.3) and (0.3)
time hold positions, may trade or(23.6) 11.9transactions,
otherwise effect (0.2)for its own
(0.3) 11.9
account or the accounts of customers, in debt or equity
securities or loans of any company that may be involved in this transaction.
Net profit 41.6 41.7 64.7 55.0 55.5 41.6 64.7 55.5
“Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors,
officers, employees and agents of each of them. Investors should assume that the “Connected Persons” are seeking or will seek investment banking or other
Net services
profit ex- 41.6
from the companies 41.7the securities
in which 64.7 have been
55.0 55.5 by RHBRI
discussed/covered 41.6in this report
64.7or in RHBRI’s
55.5 previous
Filtered down from PBT
reports.
EI
This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect
information known to, professionals in other business areas of the “Connected Persons,” including investment banking personnel.
Margins (%):
EBIT 7.4 6.0 10.8 4.7 3.4 7.4 10.8 3.4
Pretax 7.0 5.9 10.2 4.3 3.2 7.0 10.2 3.2
Net profit ex-EI 6.0 5.8 7.4 1.6 1.4 6.0 7.4 1.4 Eroded by a higher effective tax
rate
Eff. Tax Rate 13.9 0.6 27.0 26.4 13.1 13.9 27.0 13.1
Source: Company data, RHBRI estimates

Table 3: Tan Chong Unit Vehicle Sales

FYE Dec 1Q09 4Q09 1Q10 qoq yoy 3M09 3M10 yoy
(units) (%) (%) (%)

Nissan 7,119 7,986 8,601 7.7 20.8 7,119 8,601 20.8

- Passenger 5,282 5,726 6,752 17.9 27.8 5,282 6,752 27.8
- Commercial 1,837 2,260 1,849 (18.2) 0.7 1,837 1,849 0.7

Renault 54 52 46 (11.5) (14.8) 54 46 (14.8)

- Passenger 9 3 12 300.0 33.3 9 12 33.3
- Commercial 45 49 34 (30.6) (24.4) 45 34 (24.4)

Total 7,173 8,038 8,647 7.6 20.5 7,173 8,647 20.5

Source: MAA, RHBRI

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Table 4: Tan Chong SOP Valuation

(RMm) Comments

Automotive 3667.9 at 14x FY10 PER

Surplus of Segambut 400 at market value

land
Total 4067.9

Add: cash 162.0

Less: debt -689.2
Equity value 3540.8

Issued shares (m) 672 Shares outstanding

Fair value (RM) 5.26

Table 5. Earnings Forecasts Table 6. Forecast Assumptions

FYE Dec (RMm) FY09F FY10F FY11F FY12F FYE Dec FY10 FY11 FY12

Turnover 2,856.9 3,708.3 4,114.7 5,598.5 TIV (k units) 41.4 43.6 57.8
Turnover growth (%) (10.6) 29.8 11.0 36.1
Forex (RM:100JPY)* 3.67 3.64 3.64
EBIT 182.3 339.1 393.8 581.8
EBIT margin (%) 6.4 9.1 9.6 10.4 *average rate

Net Interest (5.6) (3.3) (4.8) (5.5)

Associates 0.2 0.4 0.4 0.5
EI 0.0 0.0 0.0 1.0

Pretax Profit 176.8 336.3 389.5 577.9

Pretax margin (%) 6.2 9.1 9.5 10.3
Tax (23.5) (74.0) (85.7) (127.1)
PAT 153.3 262.3 303.8 450.7
Minorities (1.0) (0.3) 0.7 1.7
Net Profit 152.3 262.0 304.5 452.4
Net Profit margin (%) 5.3 7.1 7.4 8.1
Source: Company data, RHBRI estimates

IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad
(previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The
opinions and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or
be contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be
construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any
manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons
may from time to time have an interest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives
of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate
particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or
strategy will depend on an investor’s individual circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents accepts
any liability for any loss or damage arising out of the use of all or any part of this report.

RHBRI and the Connected Persons (the “RHB Group”) are engaged in securities trading, securities brokerage, banking and financing activities as well as providing
investment banking and financial advisory services. In the ordinary course of its trading, brokerage, banking and financing activities, any member of the RHB
Group may at any time hold positions, and may trade or otherwise effect transactions, for its own account or the accounts of customers, in debt or equity
securities or loans of any company that may be involved in this transaction.

“Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors,
officers, employees and agents of each of them. Investors should assume that the “Connected Persons” are seeking or will seek investment banking or other
services from the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRI’s previous reports.

This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect
information known to, professionals in other business areas of the “Connected Persons,” including investment banking personnel.

The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based
upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on
higher risks.

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 27 May 2010

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

RHBRI is a participant of the CMDF-Bursa Research Scheme and will receive compensation for the participation. Additional information on recommended
securities, subject to the duties of confidentiality, will be made available upon request.

This report may not be reproduced or redistributed, in whole or in part, without the written permission of RHBRI and RHBRI accepts no liability whatsoever for the
actions of third parties in this respect.

This report may not be reproduced or redistributed, in whole or in part, without the written permission of RHBRI and RHBRI accepts no liability whatsoever for the
actions of third parties in this respect.

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