Malaysia-based Tan Chong Motor Holdings (TCM) kicked off 2014 with a disappointing set of earnings for the first quarter of 2014 (1Q14) due to poor sales volume caused by intensified competition and higher costs resulting from unfavourable exchange rates, higher promotional expenses, and upfront costs for two new model launches in 2Q14.

A local research house opines that the poor 1Q 14 earnings performance exacerbated TCM's share price decline to less than RM5.30, or circa 25 per cent off its RM7.01 closing peak in mid-October 2013.

Despite the two new model launches in 2Q 2014, Nissan's quarterly market share eroded further from 7.5 per cent in 1Q14 to 5.9 per cent in 2Q14.

"We are not too concern as we see the decline being exacerbated by the debut of a rival's new model launch within the high volume B-segment passenger car market. On monthly basis, Nissan's market share bottomed out in May when it hit 5.6 per cent to mildly recover to six per cent in June," said analysts.

Channel checks indicated that TCM would be launching three new Nissan models over the next six to 12 months.

Coupled with the two new models launched recently and with the right pricing strategy, analyts expect Nissan's sales volume to rebound and drive TCM fs earnings recovery for financial year 2015 (FY15) and further growth in FY16 while partially arrest the decline in FY14.

"We expect another model to be launched by end 2014, the X-Trail. Two more new models are slated for 2015, the Navara and Note.

"Except for Nissan Note, the remaining four new models shall command retail prices in excess of RM 100,000 (US$ 31,500) with combined annual expected sales volume of more than 13,000 units which would lead to better earnings for TCM going forward. We were made to understand that the new X-Trail would be locally assembled just like the first generation. This, we believe, implies that the model would be competitively priced which is essential to break the dominance of popular competing models such as the Honda CR-V, the Mazda CX-5, and the Mitsubishi ASX," said the research house.

"We view the poor sales of the second generation X-Trail was due to its pricing strategy as it was only offered in a single guise, priced at a steep RM 149,500 (US$ ) vis-à-vis the earlier model which had four variants at prices ranging from RM 130,000 to RM 149,000," the research house added.

The growing appeal of the 4WD/SUV vehicles is due to the change in its construction.

Traditional SUVs were previously built on pick-up truck chassis which is heavy, making it uneconomical while modern SUVs are now built on passenger car chassis which is lighter thus making it more fuel efficient, said the analysts.

"Our channel checks also indicated that TCM has made some tweaks to its plan of chalking 90,000 annual sales volume of Nissan vehicles by 2016. The earlier plan to launch the Datsun range in Malaysia has been temporarily shelved as it does not meet Malaysia's minimum safety standards.

"Instead, TCM would be launching another high-volume model which straddles the A- and B-segment in 2015. We think this could be the Nissan Note as its test mule was sighted on local roads in early 2014," it added.

Recall that the debut of Nissan Almera in late 2012 marked Nissan's strong comeback to the B-segment passenger car market which led to its market share growing to 8.1 per cent in 2013 from 5.8 per cent in 2012. By end 2013, TCM shifted 53,000 units of Nissan vehicles versus 36,000 units in 2012.

"The ramping up of promotional activities and recent launches of key models have arrested the decline in Nissan's market share. It rebounded to six per cent in Jun 2014 from 5.6 per cent in May 2014 - the lowest since Oct 2012.

"However, we think the escalating promotional costs would partially mitigate benefits from the two new models that were launched in April and June."