News that Tan Chong Motor’s subsidiary ETCM has been awarded sole rights to distribute Nissan CBU vehicles in Myanmar went down well with Hong Leong Investment Bank Research, which is reiterating its Buy call on the stock with the sector on Overweight.
Target price remains at RM7.30 for the shares which are currently trading at around RM6.75.
Tan Chong’s distribution rights cover an initial period of five years, with an automatic extension of one year, allowing it also to appoint dealers to sell Nissan vehicles and perform after-sales services on the vehicles.
Tan Chong will invest US$2.5mil (RM7.7mil) to support its investment in Myanmar for the initial three years of operation. It expects to commence business in the third quarter of 2013 with targeted annual sales volume at 300 units.
“With an initial sales target of 300 units, it is relatively insignificant compared to operations in Malaysia which expects sales volume of 60,000 units in the financial year 2013,” HLIB Research said.
“In 2012, Vietnam sales was 1,085 units; Laos 441 units; Cambodia 398 units. Nevertheless, we reckon the huge potential automotive market in Indochina in the longer term, given their large population base (Vietnam 90 million; Myanmar 60 million; Cambodia 15 million; and Laos 6 million) and strong economic growth prospects as the region open up for foreign investments.
“We reiterate Buy recommendation with unchanged TP at RM7.30 based on FY14 P/E of 12 times,” it concluded.