CIMB Research sees weaker earnings for auto sector in Q4

CIMB Equities Research has upgraded Tan Chong Motor Holdings (TCM) to Add with a higher target price of RM2.

KUALA LUMPUR: CIMB Equities Research expects weaker earnings for the auto sector in the fourth quarter of 2018 (4Q18) due to lower total industry volume (TIV) and unfavourable forex movement.

It said on Wednesday the sector trades at 15.2 times CY19F P/E, in line with the last industry upcycle mean of 15 times over 2010 to 2014. 

“Key upside risks to our call are favourable government policy and stronger ringgit against US$ and JPY, meanwhile depreciation in ringgit against US$ and Japanese yen, and sluggish TIV post Sales and Service Tax (SST) implementation are key downside risks to our call,” it said as it retained its neutral call for  the sector.

CIMB Research has a hold call for Bermaz Auto with a target price of RM2.30 versus its last traded price of RM1.95.

It expects Bermaz to deliver robust sales volume in FY19F, driven by the popular Mazda CX-5; but this is likely to be partly offset by weakened demand in the Philippines due to higher car prices from the new excise tax. The stock still offers an attractive CY19F yield of 6.5%.

As for Sime Darby, it has a reduce and target price of RM2.44, compared with closing price of RM2.59. Sime  expects stronger industrial earnings in FY19F, driven by healthy order book replenishment in Australia.