Tan Chong Motor Holdings Berhad

TCMH is primarily an investment-holding company; its subsidiaries are principally involved in the assembly, sale and distribution of passenger and commercial vehicles, hire-purchase financing and property investment holding. The Group has been an exclusive assembler and distributor of Nissan vehicles in Malaysia since 1957. The ratings are supported by Nissan's improving share of the Malaysian automotive market, solid balance sheet, robust liquidity profile and strong debt-servicing ability despite operating within a cyclical industry. In 2008, Nissan's market share augmented from 3.8% to 5.6% y-o-y, before progressing further to 5.9% in the first 9 months of 2009 - a commendable performance given the challenging business climate. Riding on new Nissan models within the "mass market" segment that are expected to come on-stream by 2012, the Group aims to achieve a double-digit market share for this marque in the next 3 years. Backed by its sturdy track record, TCMH is now part of Nissan Motor Co Ltd's Association of Southeast Asian Nations strategy, together with Nissan Thailand and Indonesia. This will provide the impetus for the Group to achieve its sales targets in both the domestic and overseas markets. Despite the challenging economic environment, TCMH's annualised funds-fromoperations (FFO) debt cover remained robust at 0.39 times as at end-September 2009. At the same time, it also boasted a net-cash position, in contrast to a net gearing level of 0.18 times as at end-December 2008 - following the management's prudent move to defer capital expenditure (capex) while actively managing its inventory. Looking ahead, the Group is envisaged to preserve the strength of its balance sheet. For FY Dec 2010, TCMH expects about RM385 million of gains from the proposed revaluation of its properties to boost its shareholders' funds, thereby further reinforcing its balance sheet. "Although the Group expects heftier capex and higher inventory levels due to new models to be launched in 2011, its gearing ratio is still envisaged to remain low at about 0.3 times. Meanwhile, TCMH is anticipated to maintain a robust FFO debt coverage ratio of about 0.35 times, before it rebounds to above 0.4 times the following year," says Kevin Lim, RAM Ratings' Head of Consumer and Industrial Ratings. Nevertheless, the ratings are moderated by the cyclicality of the automotive industry and changes in regulatory policies. Moreover, TCMH's exposure to fluctuations in foreign exchange rates, particularly for the Japanese yen and the US dollar, may erode its profit margins if both currencies appreciate against the ringgit.