Tan Chong Motor Holdings Bhd (17 Feb 2025)
Tan Chong Motor Holdings Berhad (TCMH) operates primarily in the automotive sector, assembling and distributing passenger and commercial vehicles while also providing after-sales services, spare parts retail, and automotive component manufacturing. The company holds franchise rights for brands like Nissan, Renault, and Foton in Malaysia and has expanded its presence across Vietnam, Cambodia, Laos, Myanmar, Thailand, and Taiwan. Beyond automotive, TCMH offers financial services, including hire purchase financing, personal loans, and insurance, to support its vehicle sales. Additionally, the company diversifies its business through property and investment holdings.
From 2020 till recent, the company share price has dropped by 70%, from RM1.30 to RM0.39.
The company has faced recent challenges:
1. Net loss: reported rm90.28 million net loss for q3 2024, the largest quarterly loss in a decade.
2. Foreign exchange impact: suffered a rm53.2 million foreign exchange loss.
3. Consumer sentiment: faced challenges due to weak consumer demand.
4. Competition: increased pressure from Chinese automotive brands offering competitively priced models.
5. Continuous losses: marked the eighth consecutive quarter of losses since q4 2022. the company’s annual loss continues from 2020.
6. Consistent selloff from EPF: significant holder EPF has consistently sold off the share in year 2024. but remain in the material position, 5.60%, from 6.37% (Jan 2024).
Several risks are presented:
1. Limited competitive offers
TCMH struggles due to an aging Nissan lineup and a lack of strong hybrid or EV models. In contrast, Toyota and Honda frequently refresh their models and dominate the hybrid segment, attracting fuel-conscious buyers. Without major updates, Nissan vehicles fail to capture consumer interest.
2. Brand perception & market positioning
Nissan’s brand strength in Malaysia has weakened, while Perodua, Toyota, and Honda maintain strong reputations for reliability and resale value. Honda appeals to younger buyers with sportier, feature-rich models, while Nissan lacks excitement and innovation, making it less competitive.
3. Chinese competition & price pressure
New Chinese brands like BYD, Chery, and GWM are disrupting the market with affordable, tech-packed cars. Their aggressive pricing and modern features attract buyers looking for value, making Nissan's offerings seem outdated and less compelling.
4. Distribution & marketing strategy
Perodua and Toyota have strong dealership networks and aggressive marketing, ensuring high visibility and accessibility. In contrast, TCMH’s marketing and distribution efforts are weaker, limiting consumer awareness and engagement.
5. Macroeconomic factors not impacting all brands equally
Despite economic challenges, brands like Perodua and Toyota thrive by offering fuel-efficient, high-resale-value cars. Demand for hybrids and EVs benefits Toyota and Honda, while Nissan’s older models struggle to adapt to shifting consumer preferences.
Investment opportunities?
Assessing Tan Chong Motor Holdings Berhad: a deep value play with a margin of safety
Tan Chong Motor Holdings Berhad (TCMH) has faced a challenging downtrend in sales and earnings since 2020, making a short-term return to its glory days highly improbable—especially in Malaysia’s intensely competitive automotive sector. However, while the business struggles operationally, the company still holds valuable, tangible assets that provide a compelling investment angle.
The Hidden Value: investment properties & hire purchase receivables
Investment Properties (RM239M, Fair Value)
Unlike its declining car business, TCMH’s investment properties—primarily real estate—retain independent value, unaffected by vehicle sales.
These properties provide a hard asset backing that is often overlooked in a traditional valuation of the company.
Hire Purchase Receivables (RM439M)
The financing arm adds another layer of value, but it’s worth hinges on borrower repayment behavior, not the company car business.
Market cap vs. asset backing: the margin of safety
With a current market capitalization of RM260M, the market appears to be pricing TCMH at just 38% of the combined value of its investment properties and hire purchase receivables (RM678M)—effectively assuming the car business is worth zero. Now, while the auto division is indeed loss-making, writing it off entirely would be extreme. Or, in more extreme cases, the market capitalization is roughly the same as investment properties, with zero regard to auto division and hire purchase.
Malaysian car sales continue to grow, and TCMH still owns valuable PPE (property, plant, and equipment), meaning the company is not obsolete—just suffering from management and product missteps.
A turnaround is tough but not impossible, especially if TCMH partners with new EV brands or enters strategic joint ventures with Chinese automakers. With access to cost-effective technology and competitive new models, the company could carve a new path forward.
Conclusion: a classic deep value situation?
At current levels, TCMH is trading well below its hard asset value, presenting a significant margin of safety for investors who can stomach short-term turbulence. While hoping for a full-fledged revival might be wishful thinking, the company still has levers to pull—whether through restructuring, strategic collaborations, or an eventual asset monetization play.
Why it’s a gamble in conventional view:
No clear profitability path: The core automotive business is losing money, and there’s no strong turnaround plan in place. Without a shift in strategy, losses could continue.
Asset value is theoretical until monetized: The company holds valuable investment properties and hire purchase receivables, but the market doesn’t believe they can be effectively realized or used to generate profits.
Potential catalysts are uncertain: A major shift—like a strategic partnership with a Chinese EV maker, aggressive cost-cutting, or asset sales—could unlock value. But without these actions, the stock could remain cheap indefinitely.
Is There an upside?
If TCMH sells assets, restructures, or finds a strong partner, its valuation could re-rate significantly, potentially yielding high returns.
If management remains passive and losses continue, it could drift lower or stay stagnant, making it a classic value trap.
Since 2014, the company's net-net current asset position has been on a steady downhill slide, showing consistent deterioration year after year. Revenue, which took a hit in 2019, has yet to recover to pre-COVID-19 levels, with 2023 and 2024 still trailing behind. Profitability has been more of a distant memory, as net income and EBIT have remained in the red since 2020. Free cash flow? Virtually non-existent over the past four years.
Operationally, the business runs on an annual ritual of debt refinancing, making it a highly leveraged, low-margin operation—certainly not a fortress of financial stability. For its latest LTM 2024 results, management pointed fingers at higher forex losses and declining sales volume as the culprits behind widening operating losses.
If post-COVID years (2022-2024) have revealed anything, it's that the company’s balance sheet is aging like milk—total liabilities are growing faster than total current assets, while revenue and profit margins continue their downward spiral. A turnaround? At this rate, it would take more than just wishful thinking.
Verdict: high risk, high uncertainty
This is not a safe investment, but rather a speculative deep value play where the bet is on asset realization or an unexpected turnaround. If you’re considering it, position sizing is key—only invest what you’re comfortable losing, because while the upside could be huge, the downside is continued erosion in business value.
Reasons to not own this stock
1. The global auto industry is a brutal, low-margin business
The car business has always been one of the toughest industries, low margins, high capital requirements, and constant innovation pressure.
Even major automakers struggle—companies like Ford, GM, and Nissan have all had to restructure, cut costs, or exit unprofitable markets at various points in history.
Weaker brands usually don’t recover. Examples: Mitsubishi has been struggling for years, and even big brands like Peugeot have had to rely on mergers.
2. Nissan is no longer competitive, hurting TCMH’s core business
Globally, Nissan has lost its edge. Its market share has declined, and its product lineup lacks excitement compared to Toyota, Honda, and even Hyundai/Kia.
Nissan’s lack of strong hybrid and EV models puts it at a disadvantage in the world moving towards electrification and fuel efficiency.
TCMH is tied to a declining brand, meaning even if Malaysia’s car market grows, TCMH may not benefit much.
3. The rise of Chinese automakers is a game changer
Chinese brands like BYD, Chery, Geely, and GWM are shaking up the global auto industry with aggressive pricing, modern technology, and high-quality EVs.
In Malaysia, BYD’s EVs and Chery’s SUVs are already gaining market share, directly competing with Nissan’s aging lineup.
TCMH is heavily exposed to this competitive shift, and unless they quickly partner with a strong EV brand, they will lose more ground.
4. Poor capital allocation & no competitive advantage
TCMH still owns valuable assets (properties & hire purchase receivables), but management has failed to turn these into a strategic advantage.
If these assets don’t generate strong returns, the stock will remain cheap for a reason.
5. A weak business model with no urgency to change
Unlike Perodua and Toyota, which constantly improve, TCMH has been stuck in a cycle of declining sales and losses.
There’s no visible urgency from management to innovate, cut costs aggressively, or seek major partnerships.
This is a "hope for turnaround stock," not a strong investment for moat.
TCMH is essentially a weak, declining business that still has some hard assets left.
If you believe in an asset monetization play, there may be deep-value potential.
If you’re hoping for a business turnaround, it’s a long shot—because in the auto industry, weak brands don’t easily recover.
Verdict:
If Tan Chong Motor Holdings Berhad's situation improves, its share price could easily reach RM1—a 150% return from the current RM0.39. This RM1 target is derived from a highly conservative valuation, simply dividing the stated value of its investment properties and hire purchase assets (RM678 million) by its 652 million outstanding shares—effectively assigning zero value to its car business.
And if the auto segment starts firing on all cylinders? Well, RM1 might just be the starting line, not the finish line.
