Hot Stock Tan Chong falls 1% on RM56m in backdated taxes in Vietnam

by **Cals** Thu 17 Oct 2013, 13:25

Hot Stock Tan Chong falls 1% on RM56m in backdated taxes in Vietnam

Business & Markets 2013

Written by Cynthia Blemin of theedgemalaysia.com

Thursday, 17 October 2013 12:06

KUALA LUMPUR (Oct 17): Shares of Tan Chong Motor Holdings Bhd fell by as much as 1.04% today on the back of news that the company’s subsidiary was slapped by the Vietnamese authorities with backdated import duties amounting to US$16.98 million (RM56 million).

At 11.07pm, Tan Chong became the eighth largest decliner and fell 7sen to a low of RM6.68. Some 1,300 shares changed hands.

In an announcement to Bursa yesterday, Tan Chong said it was slapped with backdated import duties for Nissan Vietnam Ltd’s (NVL) sales between 2010 and 2012.

To recap, Tan Chong acquired a 74% stake in NVL (Nissan’s official CKD importer and franchise holder in Vietnam) in September 2010 from Denmark-based Kjaer Group.

The remaining stake is held by Nissan Motors Limited (NML).

Despite the news, AmResearch said today it has maintained its buy call on Tan Chong with fair value of RM7.50.

It noted that the backdated duties arose from a change in the authorities’ interpretation of the customs regulations which affected CKD imports prior to January 1, 2012.

“As Tan Chong will provide for the USD16.98 million backdated taxes in 3Q13, we have slashed our FY13F earnings by 15%.

“Although we factor in the provision into our projections, our fair value, which is currently pegged to Tan Chong’s core FY13F earnings (excludes exceptional gains/losses), remains unchanged,” it said.

Furthermore, Tan Chong is currently appealing against the case and a decision is expected by year end, it added.

The research house noted that the management also cited past experience by peers in Vietnam having to pay only 20%-30% of the initial amount charged post-appeal.

For now, the provision is merely an accounting provision without actual cash outflow until a decision has been made by the authorities on the final amount chargeable, it opined.

In the case of a favourable outcome, Tan Chong will write-back the amount in FY14, it said.

In a separate note, JF Apex Securities Bhd also said it has maintained its buy call on Tan Chong with unchanged target price of RM7.00.

This is based on 11 times FY14F price earnings ratio (PER) derived from earnings per share of 64sen, in line with the industry PER, it added.

The research house has also maintained its net profit forecast of FY14F of RM427.5 million as the one-off provision is not a recurring item and it will be fully booked in FY13F.