Written by CIMB Equities Research
Wednesday, 19 May 2010 08:31
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KUALA LUMPUR: CIMB Equities Research is maintaining its Overweight on the auto sector with Tan Chong Motor as its top pick.
“Potential re-rating catalysts include 1) better-than-expected sales performances, 2) a firming ringgit, and 3) potential newsflow on foreign tie-ups. Tan Chong remains our top pick,” it said on Wednesday, May 19.
April's total automotive industry volume jumped 17% on-year, reflecting the much stronger consumer sentiment, the release of demand pent up from last year, contribution from new models and, to a certain extent, the rush to take delivery of the vehicles before the interest rate hike on March 15.
Annualised YTD sales volume stands at 588,363 units (+10% yoy). This is slightly ahead of our projection of 586,500 units (+9% yoy) for 2010.
“Although the remaining months, like April, are unlikely to match March's bumper level consistently, we expect sales volume to continue rising yoy. But the degree of growth could moderate since vehicle sales started strengthening towards 2H09,” it said.
CIMB Research said as such, it is inclined to maintain its 9% growth projection for 2010. The continued strength of the ringgit should set the stage for margin expansion this year.