Malaysia’s pioneer automotive player in EV vehicles - New Issuance

TCMH – under the TCMH Group – is recognised as a significant industry player in the automotive sector with principal activities include assembly, manufacturing, and distribution of motor and commercial vehicles; providing after-sales services and spare parts; auto-related financial services. As a franchise holder and exclusive distributor passenger and light commercial vehicles of Nissan and Renault, TCMH’s product and services are present in both local and international market. 

Amid the pandemic, overall sales of new motor vehicles fell for the second consecutive year, albeit narrower at 3.9% y-o-y to 508,911 vehicles in 2021 (2020: -12.4%; 529,514 vehicles). Although the automotive industry as a whole has yet to recover from the crisis, sales performance during the year has surpassed its forecasts set by the Malaysian Automotive Association of 500,000 units. This is attributed the lower interest rate environment and extension of sales exemption to June 30, 2022. 

 

As for TCMH, car sales performance was directly impacted by the intermittent phases of movement control orders as presented in Exhibit 1. 

Source: iFAST Note: MCO – Movement Control Order NRP – National Recovery Plan; Established by the Malaysian Government to execute the exit-strategy through COVID-19 pandemic

Source: iFAST

Based on the above, we observe a strong positive correlation between the relaxation of the mobility restriction and the number of units sold. Therefore, we expect the company’s business performance to improve, in tandem with the reopening of global economy going forward. We also believe investors’ sentiment in the automotive sector shall remain positive considering the industry’s two-year experience in adapting COVID-19 crisis. 

Near-term production line remains resilient against global chip shortages

The shortage in the semiconductor chip has plague various industries around the world. This issue is partly due to stronger demand for more advanced chips from the electronics and computer through COVID-19. Notwithstanding this, based on its rating agency’s report, TCMH’s production may not be impacted given its adequate levels of existing inventory to meet production up to early-2022. 

The company has signed a 5-year agreement in May 2020 with China-based automobile manufacturer, SAIC Motor Corporation Ltd, to distribute its MG models. Meanwhile, the company is also undertaking a USD22 million production capacity expansion in Da Nang, which has been successfully completed in end-2021 as per timeline. Through this effort, the Group anticipates a 40% growth in revenue in the medium term, compared to 20% currently. 

Source: MARC; TCMH 

As a non-national automotive player, TCMH faces stiff competition against the local rival car brands i.e., Proton and Perodua. Before the pandemic, TCMH’s top line performance was flat, reflecting the ongoing challenges to compete its position in the domestic auto industry. As expected, revenue in 2020 declined to RM3.0 bil or by almost 30%, largely due to closures of its showrooms during the various stages of movement control orders.

On the other hand, foreign exchange volatility has also dragged on the group’s performance as 25% of its input costs are dominated in USD and JPY. Given the volatility in the forex exchange market, TCMH’s pre-tax loss recorded at RM161.3 mil in 2020. However, in 9M2021, the Group recorded some improvement in its pre-tax loss of RM38.9 mil in 9M2021, supported by various cost-saving initiatives (i.e., e-commerce and organisational restructuring). 

With easing of mobility restriction along with the reopening of economy, sales for 4Q2021 and 2022 may benefit from its marketing on newly launched Nissan Almera Turbo and Navara models.

TCMH’s has persistently maintain a conservative leverage capital structure. As at 9M2021, TCMH’s gross and net debt-to-equity (DE) ratios stood at 0.67x and 0.35x. Total borrowings of RM1.8 billion consist of working capital financing and the RM500.0 million principal for its MTN which has been fully repaid in November 2021. The group had used this fund to build up its inventories in anticipation of a sales recovery as the pandemic measures are eased over the near term.

Source: MARC; TCMH

As at 9M2021, CFO was in the negatives, standing at -RM80.5 mil due to weak sales. There was also an inventory build-up due to the delays in shipments of orders as well as assembly parts caused by the pandemic-related challenges. It also recorded a strong CFO of RM634.4 mil, thanks to inventory clearing in Vietnam after the termination of its Nissan distribution rights in Sept 2020. 

Notwithstanding the impact from COVID-19 crisis on the Group’s performance, we expect TCMH’s financial performance to improve gradually, in line with the national economic recovery. Based on the Group’s mission to maximise future growth potential, TCMH continues to expand its operations to the Indochina region i.e., Laos, Myanmar, Vietnam and Cambodia. Recently, the company had completed its second plant in Vietnam in December 2021, reflecting the company’s strong and sustainable position in that region

To learn more about TCMH's new proposed primary bond issuance and take advantage in its investment opportunities, click here.