The BUYs in our automotive coverage are: PROTON (TP: RM5.90), MBM (TP: RM3.54) and TCHONG. Our TP for TCHONG is currently under review (with more upside) as we came away from a recent discussion with Management with a favorable outlook on its profit margins given the strong ringgit and higher volume assumption for the Nissan Teana in 4Q2010. This prompts us to review our earnings forecast for FY10-12. Evidently, the improved demand will be favorable for auto parts suppliers such as EPMB (BUY, TP: RM0.59) given its tier 1 supplier status with Perodua and Proton while NHFATT (BUY, TP: RM2.75) will benefit from expansion in the export market and resilient local demand given its extensive distribution network. Nevertheless, despite the Buys, UMW remains a NEUTRAL with our TP of RM6.62 retained due to the lack of catalysts from its oil and gas division despite having factored in an earnings uptick from its auto division.
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