KLCI Stock - TCHONG / 4405 - 2010 Quarter 2

Market Cap : 672000000*4.85 = 3,259,200,000 (Large)
NTA per share : 1618249/652819 = 2.49
P/BV : 4.85/2.49 = 1.9478
Forecast P/E now : (4.85-0.12)/0.3932 = 12.03 (Moderate)
ROE : 12.98% (Moderate)
DY : 0.12/4.85*100 = 2.47% (Low)
Fixed Asset Turnover(3 year) : (1.3174+1.5193+1.279)/3 = 1.3719 (High)
Liquidity Ratio : 1531547/438932 = 3.4893 (High)
Receivables Collection Period : (419359+282178)/2/(3264249/365) = 39 days (Acceptable)
My Target Price : 5.78+0.12 = 5.9 (PE 14, EPS 0.4129, DPS 0.12)
My Decision : BUY
My Comment : Revenue and profit increased, good cash flow, moderate debt, navps increasing, BLR increased, strong Ringgit, expanded business to regional market
Technical Support Price : 4.2
Risk Rating : LOW
OSK Target Price : 6.4 (19 Aug 10)

My notes based on 2010 Quarter 2 report (number in '000):

- The current interim results reflects a durable recovery in TIV (total industry volume) but with a more pronounced 29.3% increase in revenue and doubling in operating and pre-tax profits compared to the same period in 2009. Volumes accompanied by pricing flexibility through localisation, to a large extent impacted the 1H more than a stronger Ringgit. Despite higher tax provision, 1H 2010 is above 1H 2008, our previous record year, in terms of revenue and profit

- Q2 2010 is our second consecutive increase in sales and pre-tax profits after volumes stabilized and bottomed in Q4 2009. Revenue at RM927.9 million for the three months ended is approaching the billion ringgit mark achieved during the previous peak in Q3 2008

- Unlike in Q1 2010, the earlier RM6.0 million marked to market paper loss on forward contracts for hedging purposes reversed into a RM11.4 million gain in Q2 2010 under the same measure in
accordance with fair value accounting for financial instruments under FRS 139

- In spite of higher business activity, net gearing remains negligible and working capital is under control. Productivity gains as well as creditworthiness to structure finance our receivables had enabled the Company to meet higher demand without using up more capital. But as the business scale of Tan Chong continues to develop in the next few years, its capital requirements may need to increase correspondingly

- Our business is still subject to market volatility. July car sales had softened but August is seeing rush orders before Hari Raya holidays in September. October-November may be busier and December is usually quiet again

- Estimate next 4Q eps after 2010 Q2 result announced = 0.0983*4 = 0.3932, estimate PE on current price 4.85 = 12.03(DPS 0.12)
- Estimate next 4Q eps after 2010 Q1 result announced = 0.0991*4 = 0.3964, estimate highest/lowest PE = 12.92/9.51 (DPS 0.11)
- Estimate next 4Q eps after 2009 Q4 result announced = 0.0639*4 = 0.2556, estimate highest/lowest PE = 19.91/10.92 (DPS 0.11)
- Estimate next 4Q eps after 2009 Q3 result announced =0.0527*4 = 0.2108, estimate highest/lowest PE = 16.65/10.44 (DPS 0.1)
- Estimate next 4Q eps after 2009 Q2 result announced = 0.0528*4 = 0.2112, estimate highest/lowest PE = 12.31/8.19 (DPS 0.1)
- Estimate next 4Q eps after 2009 Q1 result announced = 0.0626*4 = 0.2504, estimate highest/lowest PE = 7.35/5.39 (DPS 0.1)
- Estimate next 4Q eps after 2008 Q4 result announced = 0.0425*4 = 0.17, estimate highest/lowest PE = 9.12/6.12 (DPS 0.1)

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