AmEesearch Sdn Bhd has strengthened its "buy" call on Tan Chong Motor Holdings (4405) stock and revised upwards its fair value to RM4.30 from RM3.70 a share after meeting the company's management.
The research house upgraded its valuation of Tan Chong's motor division to 13 times its forecast 2010 earnings from its historical mid-cycle price-earnings of 12 times, noting major structural changes that could elevate Tan Chong's competitive positioning.
AmResearch said it came out of the meeting with Tan Chong's management and identified three developing themes which could be catalysts in lifting its share price.
The themes are its structural regional expansion, wider model mix and plans for property redevelopment.
Tan Chong has said that it intends to become an integrated Asean automotive supply chain manager, that is, turning the company into a borderless manufacturer and one with a higher level of autonomy from its principals.
Succeeding in this goal could see an expansion of its assembly and distribution rights in the region.
Acquisitions are on the cards involving markets such as Indonesia, Cambodia and Laos, after similar moves in Thailand and Vietnam last week.
The move would involve a total investment of RM1 billion over the next four years, it said.
AmResearch projects Tan Chong's strategy of widening its model mix on the Malaysian scene to bring about robust growth in its market share.
At present, Tan Chong is not represented in three major vehicle segments - A, B and D - which account for 61 per cent of total industry volume in the country.
Its management expects earnings to double in 2012 from 2009 levels with the introduction of A and B segment models.
Around RM250 million has been allocated for Phases 2 and 3 capacity expansion at Tan Chong's plant in Serendah, Selangor, over the next two years, which would more than double the annual capacity to between 50,000 and 60,000 vehicles.
At the same time, a property redevelopment theme is unfolding at its Segambut land.
AmResearch said the catalysts are revaluation of its property in Segambut; conversion of the land to commercial real estate; and value enhancement from development of the land.
