KUALA LUMPUR: AmResearch is maintaining its Neutral recommendation on the automobile sector as the strengthening yen as a result of the Japanese earthquake is a rising concern for local assemblers.
The research house said on Thursday, March 17 the assemblers' margins will be crimped by potentially higher completely knocked-down (CKD)'' kit price and a weaker ringgit versus yen.
AmResearch said the impact on local assemblers could come in two forms. The first is that their Japanese principals may decide to raise CKD kit prices in order to cushion the impact of the rising Yen. Toyota still builds 38% of its vehicles in Japan, while Nissan and Honda's local plants make up 24% and 22% of total production, respectively.
Secondly, local assemblers could be hit by higher raw material costs. Tan Chong Motors and UMW import 30%-40% of raw materials in yen, with the remaining in US$ (these are mainly imports from Thailand and Indonesia).
'On the contrary, ringgit trends against the US$ seem to be flattening out. We estimate that every 1% strengthening of the yen will hit Tan Chong Motors and UMW's bottomline by 2%-3%,' it said.
'We re-iterate our HOLD calls on Tan Chong Motors (FV: RM5.00/share) and UMW (FV: RM7.40/share). Our top pick in the sector remains to be APM (BUY, FV: RM7.00/share) as a play on Tan Chong group's regional expansion, increasing localisation domestically and influx of foreign marques into the country,' it said.
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The research house said on Thursday, March 17 the assemblers' margins will be crimped by potentially higher completely knocked-down (CKD)'' kit price and a weaker ringgit versus yen.
AmResearch said the impact on local assemblers could come in two forms. The first is that their Japanese principals may decide to raise CKD kit prices in order to cushion the impact of the rising Yen. Toyota still builds 38% of its vehicles in Japan, while Nissan and Honda's local plants make up 24% and 22% of total production, respectively.
Secondly, local assemblers could be hit by higher raw material costs. Tan Chong Motors and UMW import 30%-40% of raw materials in yen, with the remaining in US$ (these are mainly imports from Thailand and Indonesia).
'On the contrary, ringgit trends against the US$ seem to be flattening out. We estimate that every 1% strengthening of the yen will hit Tan Chong Motors and UMW's bottomline by 2%-3%,' it said.
'We re-iterate our HOLD calls on Tan Chong Motors (FV: RM5.00/share) and UMW (FV: RM7.40/share). Our top pick in the sector remains to be APM (BUY, FV: RM7.00/share) as a play on Tan Chong group's regional expansion, increasing localisation domestically and influx of foreign marques into the country,' it said.
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