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UPDATE 1-Malaysia's EON hits 30-mth high on windfall plan

(Adds details in paragraphs 5, 11 and onwards)

By Wong Choon Mei

KUALA LUMPUR, Nov 27 (Reuters) - Shares in Malaysia's largest car distributor, EON , jumped as much as 19 percent to a 30-month high on Wednesday after the company unveiled a one billion ringgit ($263 million) windfall plan for shareholders.

Analysts, who cheered the plan, said more gains were possible in the short term although the auto sector might face tough times in the next two years, as consumer fatigue rose and uncertainty from impending market liberalisation weighed.

EON shares hit a high of 13.90 ringgit before trimming gains to trade at 13.40 ringgit, up 14.5 percent by 0356 GMT. The stock resumed trading on Wednesday after a one-day suspension.

On Tuesday, Edaran Otomobil Nasional Bhd said it would pay a net dividend of 702 million ringgit to shareholders and distribute among them a 13 percent stake worth about 250 million ringgit in Singapore's Cycle & Carriage Ltd .

"Even after this morning's jump, the price earnings ratio is still low at 7.0 times," said C.K. Ngu, research head at TA Securities. "That's below the sector's average of about 8.0 times and half the overall market's 14."

Controlled by Malay tycoon Saleh Sulong, EON distributes Proton cars and has a 36 percent share of the Malaysian market, one of the biggest in Southeast Asia.

It also owns medium-sized lender EON Bank.

STAKE SALE FAILED

The car retailer had wanted to distribute its cash hoard to investors after announcing plans to sell its 21 percent in Cycle & Carriage to Hong Kong's Jardine Strategic Holdings Ltd in July.

But it only succeeded in selling 7.91 percent in the partial takeover offer launched by Jardine.

EON plans to give back the remaining 31.83 million Cycle & Carriage shares to qualified EON holders on an allotment basis to be fixed later. Shares in CCL dropped 10 cents to S$3.54 in Singapore.

EON, along with rivals like unlisted Proton Edar, UMW Holdings and Oriental Holdings , faces tough times ahead as vehicle demand slows after four years of double-digit growth.

"We expect 2003 vehicle sales to be somewhat muted," said DBS Vickers Securities in a research report. "Using the pre-crisis year of 1997 as a gauge, we believe the replacement cycle peaked this year."

Malaysia's auto industry is also dogged by uncertainty ahead of market liberalisation in 2005, when the government has to drop tariffs that are currently as high as 300 percent to just five.

Analysts said buyers, hoping for huge discounts, were likely to hold back, despite a threat from Prime Minister Mahathir Mohamad to raise taxes in 2005 to replace old tariffs.

TA's Ngu said EON's decision to return money to its shareholders might be the best move, given the limited opportunities in the market. "If the investment prospects aren't good enough and you are not sure what to do with the extra money, I think it's very fair to give it back to shareholders," he said.

Last year, EON lost its monopoly to distribute Proton cars when the national carmaker decided to set up a rival retailer, a move which sparked a selldown of EON stock.

Sprawling auto group DRB-Hicom owns 32 percent of EON.

($1=3.8 ringgit)