KUALA LUMPUR, Dec 21 — The termination of the joint venture between Tan Chong Motor Holdings Bhd (TCMH) and Nissan Motor Co Ltd in Vietnam has no immediate impact on its ratings, said RAM Ratings Services Bhd.
RAM’s Consumer and Industrial Rating Head Kevin Lim said the termination of the joint venture does not affect the existing franchise agreements to distribute Nissan vehicles in Malaysia, Cambodia, Laos and Myanmar, where the group continues to be the sole distributor for Nissan.
“TCMH still carries out the manufacturing and assembly of completely knocked down (CKD) Nissan vehicles in Vietnam as it is undertaken via its fully-owned subsidiary, TCIE Vietnam Pte Ltd, under a separate agreement,” he said in a statement today.
From a business perspective, Lim said TCMH’s smaller footprint in Vietnam is anticipated to limit its growth in the country and may impede its regional diversification strategy.
“In the financial year ended December 2017, Vietnam accounted for 13 per cent of TCMH’s total revenue, over half of which was contributed by the complete built-up segment.
“That said, the group’s entire Vietnamese operations have been loss-making (pre-tax loss in fiscal 2017: RM77 million). The reduced scope of operations in Vietnam is therefore expected to provide some relief to TCMH’s bottom line,” he said.
Lim added that as the bulk of TCMH’s business involves the sale of products under brands it does not own, the group is exposed to franchise non-renewal risk.
“Its operations will be severely affected in the event that any of its franchises are withdrawn or negatively modified. Nonetheless, this risk is moderated by the group’s six-decade-long relationship with Nissan Motor and its established track record,” he said. — Bernama