TChong reported strong growth in top-line & bottom-line for 3Q2008

TChong has just announced its results for 3Q2008 ended 30/9/2008, where its net profit increased by 40% q-o-q or 188% y-o-y to RM95.4 million. Turnover jumped by 28% q-o-q or 69% y-o-y to RM1.00 billion.

Looking at the table below, we can see the big change in the results for the last 4 quarters when compared to the preceding 4 quarters. Turnover increased by 61% from RM1.85 billion to RM2.99 billion, while net profit increased by 247% from RM72 million to RM250 million. TChong experienced 2 big leaps in the past 9 months. The first leap was in 1Q2008, when it introduced its Nissan Grand Livina model. The next leap was in 3Q2008 when it introduced its Nissan Sylphy model. Because of these new models, TChong's share of Malaysian's Total Industry Volume ('TIV') increased from 3.8% to 5.2%. With bigger volume comes economies of scale, which helped to push TChong's net margin from 7.1% in 1Q2008 to 8.7% in 2Q2008 & 'nearly 10%' in 3Q2008.



There are signs that the growth in the TIV has begun to slowdown in August, against the backdrop of global economic crisis. TChong is not expected to escape from this economic crisis. Sales of durable goods, such as automobiles, are likely to drop during this period.

However, I believe the market may have over-discounted the drop in TChong's earning. From Chart 1 below, we can see that TChong's share price is now at the 'low' recorded in 2007. It is now testing its strong horizontal support of RM1.15. A break of that horizontal support could send the stock to the next strong horizontal support of RM1.00 (see Chart 2).


Chart 1: TChong's weekly chart as at Nov 17, 2008 (source: Quickcharts)


Chart 2: TChong's monthly chart as at Nov 17, 2008 (source: Quickcharts)

At yesterday's closing price of RM1.15, TChong is now trading at a trailing PE of 3.1 times (based on last 4 quarters' EPS of 37 sen). If we assumed that TChong's earning were lower by 50% to 18 sen over the next 1 year (due to poor economic outlook), then TChong would still be trading at a relatively inexpensive PE of 6.2 times. In addition, its Price to Book is equally undemanding at 0.55 times (based on NTA of RM2.10 per share as at 30/9/2008).

Based on strong financial performance, attractive valuation & good technical support, TChong could be a good BUY for long-term investing.