AMRESEARCH Sdn Bhd (4405) has maintained its "hold" call on automotive group Tan Chong Motor Bhd, citing the weak economic situation and deteriorating consumer confidence.
The research house also maintained its fair value for Tan Chong's share price at RM1.18 per share, giving it a valuation of six times financial year 2009 earnings.
Although the research group acknowledges Tan Chong's advantage over local carmakers in terms of secure product pipeline, it is still concerned over the overall unfavourable market condition where consumers are more careful and prudent in their spending.
"While we are impressed with the management's passion to drive sales, we think unexciting earnings, a weak underlying environment and lack of re-rating catalyst will likely depress Tan Chong's valuations in the near term," it said in a research note yesterday.
This year, Tan Chong plans to launch a completely built-up (CBU) vehicle positioned at the mid-to-higher end of the group's product range.
"This will seem less appealing to the mass consumers, taking into consideration typical downsizing of purchases amid economic downturn," the note said.
However, AmResearch believes Tan Chong's prospects will improve substantially if it can tap into the lucrative B-segment of the market. In fact, Tan Chong's own management expects some 30 to 40 per cent jump in sales volume from the exposure to this segment.
"While our forecasts seem to be less optimistic than management's, this is on the back of our expectation of a 23 per cent drop in the total industry volume to 423,300 units in 2009," it said.
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