TChong's topline & bottonline soared

TChong has just announced its results for 1Q2008 ending 31/32008. Its net profit increased by 69.4% q-o-q or 331% y-o-y to RM54.1 million, while turnover increased by 71.9% q-o-q or 90.7% y-o-y to RM760 million. TChong explained its improved performance as follows:

Overall market shares of NISSAN and UD vehicles for the current quarter is higher at 5.2% compared to 3.8% for 2007. The launch of the all-new Grand Livina in December last year added 3,539 units to 1Q08 sales of 8,582 vehicles. While the all-new Grand Livina gets most of the attention, the Group’s other existing models delivered a robust performance of 5,043 units for 1Q08 compared to 4,287 units previously.

The Group revenue almost doubled in 1Q08. Operating margin, a raw measure of a company’s profitability, increased from 4.9% in 1Q07 to 9.2% by 1Q08. Net income was RM54.1 million or 8.1sen per share, up 331.0% from a low base in 1Q07, as the higher level of revenue flowed directly through to the bottom line.

In its results announcement, TChong has given an informative account of the improvement in the auto sector:

Total Industry Volume (TIV) of new vehicles in Malaysia for 1Q08 recovered by 24.6% to 130,774 units compared to 104,950 units in the same period last year (source: Malaysian Automotive Association). Compared to the preceding quarter, current quarter’s TIV is 1.4% higher than the TIV for 4Q last year of 128,942 units. The higher registrations in the current quarter are indicative of a resilient consumer and a ready market for new models.

TChong (closed at RM1.98 as at May 28th) is now trading at a trailing PE of 9.4 times (based on its last 4 quarters' EPS totaling 21 sen) or at a P/Book of 1 time (based on its NTA per share of RM1.93 as at 31/3/2008). However, if TChong can maintain its last quarter's profitability, then its full year's EPS could be as high as 32 sen; thus giving it a forward PE of 6.2 times. As such, TChong is deemed inexpensive.

TChong share price is moving in a short-term uptrend, with support at RM1.90. However, the medium-term downtrend line is still capping the rise in its share price. In order to breakout of that downtrend line, TChong need to surpass the RM2.05 level convincingly.


Chart: TChong's daily cahrt as at May 28th, 2008 (source: Quickcharts)

Based on improved performance & attractive valuation, TChong could be a good stock for long-term investment. The share price need to break above the RM2.05 level for a sustainable upside move.