KUALA LUMPUR: The continued stiff competition in the domestic market and political uncertainty in Myanmar could impact Tan Chong Motor Holdings Bhd (Tan Chong), said Hong Leong Investment Bank Bhd (HLIB Research).

However, the bank-backed research firm guided that Tan Chong could gain new orders as the situation gradually returned to pre-pandemic levels for Malaysia and Vietnam with relaxed lockdown measures.

Analyst Daniel Wong expected recovery in the fourth quarter of the financial year 2021 as Malaysia operation is expected to leverage onto the extended sales and services tax (SST) exemption measures till mid-2022, with the supply chain and production line recovery.

"Management sees a good recovery to new car orders as the country transitions into Phase IV National Recovery Plan (NRP).

"Supply chain and production line have also normalised with microchips supply been secured enough to last until mid- 2022, in tandem with the ending of SST exemption," he said in a research note today.

He said the company's new focus on the car subscription business model, which started in 2019, has continued to gain traction, with the current fleet size reaching 2,800 units.

"Management targets to breakeven in 2022, when fleet size grows to 4,000 units."

However, HLIB Research remained cautious on the company's domestic market outlook, given the anticipated stiff competition for the mass market segment with attractive models Honda City, Honda City Hatchback, Toyota Vios, Toyota Yaris and Proton X50 competing in the same price segment of RM80,000 to 100,000.

Meanwhile, the company's operations in Vietnam began to recover as new orders gained traction again after being affected by a series of lockdown measures in Ho Chi Minh City and certain provinces.

"The management is exploring opportunities with third parties for the potential utilisation of its Danang plant, which we can only expect a conclusion towards the end-2022 and early-2023."

Tan Chong's operations in countries continued to record losses due to lockdown measures during the quarter.

"Myanmar recorded sales uptick in the third quarter of 2021 mainly due to pre-price hike sales event in September, as the company will be introducing price hike effective October in tandem with general industry practice on the depreciated Myanmar Kyat currency.

"The situation in Myanmar remains fluid at this juncture," it said.

HLIB Research has maintained a 'Sell' recommendation on Tan Chong with an unchanged target price of RM1.00 based on unchanged 10 times price-earnings to FY23 earnings.