Tuesday, May 22, 2012

TChong- a slight recovery in bottom-line & top-line

Results Update

TChong has just announced its results for QE31/3/2012. Its net profit rose 2% q-o-q but declined 57% y-o-y to RM31.7 million while revenue rose 12% q-o-q but dropped 13% y-o-y to RM983 million. TChong's financial performance was badly affected by a series of natural disaster, such as the Japanese earthquake & the Bangkok flood as well as credit tightening which affected revenue (as mentioned above) & cause EBITDA to decrease by 42.6% y-o-y from RM129 million to RM74 million. However, the results for QE31/3/2012 was an improvement over the results for the immediate preceding quarter (QE31/12/2011) as sales volume rebounded by 23.6% q-o-q. The revenue increased only by 12% q-o-q & net profit only inched up 2% due to the lower sales mix of vehicles & higher direct sales costs.

Table: TChong's last 8 quarterly results

Chart 1: TChong's last 22 quarterly results

We can see that the profit margin for TChong has been sliding for the past 3 years. This coincided with the appreciation of the Japanese Yen vis-a-vis our Ringgit. Since JPYMYR is in an uptrend, the possibility is that TChong's profit margin may stay weak.

Chart 2: TChong's profit margin for last 22 quarterly results

Chart 3: JPYMYR weekly chart for the past 5 years (Source: Yahoo Finance)


TChong (closed at RM4.50 yesterday) is now trading at a PE of 16.9 times (based on last 4 quarters' EPS of 26.61 sen). At this PE multiple, TChong is full-valued.

Technical Outlook

TChong broke above its long-term trading range at RM2.30 in November 2009. After a scorching run, the stock has entered into a consolidation, with support at RM4.00. Until its financial performance picks up again, TChong is likely to trade sideway, between RM4.00 & RM4.50 for a while.

Chart 4: TChong's monthly chart as at May 21, 2012 (Source: Tradesignum)


Based on demanding valuation & uncertain technical outlook, I would recommend to avoid this stock for now.


Jollybee said...

Able to notice from the TC management efforts for unwilling to upgrade and expand the servicing line.

Mitsubishi recently fast catching up with their Japanese vehicle models sold just like Nissan.

Alex Lu said...

HI Jollybee,

TChong has always been slow to bring out newer models. This may be due to lower sharing of development cost as older models may be "cheaper"; thus bring in higher gross margin. However, older models may be harder to sell & involved higher discount or free accessories. Your point is valid.