OSK Research Sdn Bhd has raised its target price on Tan Chong Motor Holdings Bhd (TCM) (4405) to RM7.29 (previously RM6.40) after the company proposed to buy a 74 per cent stake held by Kjaer Group in Nissan Vietnam Co Ltd, with the remaining stake held by Nissan Motor Corp."With this missing piece of the puzzle in place, Tan Chong can now truly fire up its distribution of Nissan vehicles in the region, having secured exclusive rights to Laos, Cambodia and Vietnam in the past one year.
"We are positive on the outlook for its Indochina venture given the region's under penetrated markets, from which Tan Chong can reap tremendous potential.
"The total acquisition cost will be Kjaer's original investment cost of US$7.4 million (RM22.9 million), which is at a premium of US$2.99 million (RM9.2 million) over the current proportionate book value held by Kjaer given that NVL has been loss making over the past two years."
OSK Research added that the losses reflected its high operating expenses on staffing as it has to hire foreigners and expats.
Despite the premium, the firm believes this is a fair price for market access to Indochina, which is a crucial entry point for exclusivity.
"We believe that with Tan Chong's cheaper labour costs and operating efficiency in its assembly operation, the company may break even next year.
"We now value TCM at 14 times PER (from 13 times), which is a premium over its historical PER of 10 to 11 times. This is justifiable as the latest acquisition strengthens the company's penetration into the huge Indochina market."
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