Tan Chong Motor upgraded to Add by CGS-CIMB as beneficiary of new Malaysia government

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CGS-CIMB upgraded Tan Chong Motor to Add from Reduce after first-quarter earnings beat forecasts and as it was set to benefit from the new Malaysian government’s policies.

The new government’s proposals to reduce excise duties on imported cars below 1,600cc for first-car buyers was set to benefit Tan Chong, CGS-CIMB said in a note on Monday.

“Moreover, we expect the overall automotive sector to benefit from the government’s announcement it will reduce the Goods & Service Tax (GST) from 6 percent to 0 percent on 1 June 2018. The move will lower the average selling price (ASP) for new vehicles and could help boost total industry volume,” it said. But it added that the re-introduction of a sales and services tax later may lead to higher ASPs.

The brokerage added that first-quarter earnings beat its expectations, coming in at 53 percent of its full-year net profit forecasts on higher operating margins due to favorable foreign-exchange rates as the Malaysian ringgit appreciated against the U.S. dollar.

It raised its 2018-20 earnings per share forecasts by 5-81 percent on the higher operating margins.

That increased its target price to 2.00 ringgit from 1.64 ringgit.

The stock ended Tuesday up 2.73 percent at 1.88 ringgit.