PP 7767/09/2010(025354)

09 September 2010
RHB RESEARCH INSTITUTE SDN. BHD.
RHB Research
Corporate Highlights
Malaysia
Institute Sdn Bhd
A member of the
RHB Group
Company No: 233327 -M

N ew s Updat e
09 September 2010
MARKET DATELINE

Tan Chong Motors Share Price

Fair Value
:
:
RM5.03
RM6.16
Tie Up With Xi’an Silver Bus Corporation 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) 22.2 2.4 16.9 10.7 0.1 1.8
2010f 3,708.3 262.0 39.0 72.0 12.9 39.3 2.1 10.9 16.1 0.2 2.3
2011f 4,114.7 304.5 45.3 16.2 11.1 47.8 1.8 9.6 16.1 0.2 2.4
2012f 5,598.5 452.4 67.3 48.6 7.5 57.8 1.5 6.7 19.8 0.1 2.6
Main Market Listing / Non-Trustee Stock / Non-Syariah Approved Stock By The SC * Consensus Based On IBES

Issued Capital (m shares) 672.0

♦ Sole and Exclusive Right. The company announced yesterday that its Market Cap (RMm) 3,380.2
wholly-owned subsidiary, Tan Chong Industrial Equipment S/B (TCIE), had Daily Trading Vol (m shs) 1.0
entered into an agreement that grants sole and exclusive right to assemble 52wk Price Range (RM) 1.95-5.25
and distribute completely knocked-down (“CKD”) buses under the brand of Major Shareholders: (%)
Silver Bus in Malaysia and such other countries as TCIE and Silver Bus may Tan Chong Consolidated 45.9
S/B
agree from time to time.
Nissan Motor Co Ltd 5.6
EPF 5.4
♦ Information on both parties. TCIE is a wholly-owned subsidiary of Tan
Chong and is involved in the distribution of trucks and buses under the FYE Dec FY10 FY11 FY12
brand of UD Trucks (formerly Nissan Diesel), while Silver Bus is a Chinese EPS chg (%) - - -
(PRC) incorporated joint venture company between Volvo Bus Corporation Var to Cons (%) (0.8) (5.2) 16.5
and Xi’an Aircraft Industry (Group) Company Limited that is the market
leader in the luxury coaches market in China. PE Band Chart

♦ Long term JV. The agreement will be for 10 years and both parties will PER = 15x
PER = 10x
relook at the renewal of the tie-up at least six months prior to the PER = 5x
expiration of the agreement.

♦ Rationale for the tie-up. Tan Chong believes that it can leverage on
TCIE’s existing established sales and after-sales service network of UD
Trucks throughout Malaysia for the Silver Bus product range. The company
mentioned that the capital expenditure required for the new business Relative Performance To FBM KLCI
venture, including purchase of jigs and accessories for the assembly of the
new vehicles, is estimated at RM100,000 to be fully funded by TCIE.
Tan Chong Motors

♦ Positive on venture, but immediate impact minimal. The company

stated that the roll-out of the Silver Busses will commence by 2QFY11 with
a projected sales volume of 80 units in the first year of operation. As such, FBM KLCI
although we foresee long-term benefits from the tie-up, in the near term
the impact will be minimal.

♦ Key risk. 1) Lower car sales arising from slower-than-expected economic Joshua CY Ng
recovery; and 2) Weakening of RM against US$ and Yen. (603) 9280 2239
joshuang@rhb.com.my
♦ Forecasts. No changes to our forecasts at this juncture, as we wait to see
actual roll-out before incorporating the additional earnings.

♦ Investment case. We maintain our indicative fair value at an unchanged

SOP fair value of RM6.16 and reiterate our Outperform call on the stock.

Please read important disclosures at the end of this report.

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Table 2: Tan Chong SOP Valuation

(RMm) Comments

Automotive 4263.5 at 14x FY11 PER

Surplus of Segambut 400 at market value

land
Total 4663.5

Add: cash 162.0

Less: debt -689.2
Equity value 4136.3

Issued shares (m) 672 Shares outstanding

Fair value (RM) 6.16

Table 3. Earnings Forecasts Table 4. Forecast Assumptions

FYE Dec (RMm) FY09 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 42.8
Turnover growth (%) (10.6) 29.8 11.0 36.1
Forex (RM:100JPY)* 3.52 3.67 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

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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
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RHBRI and/or its associated persons may from time to time have an interest in the securities mentioned by this report.

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objectives of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors
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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.

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.

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the

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