Investment Highlights

Key Proposals of National Transport Policy 2019-2030 (NTP 2019) on the automobile sector:

• To accelerate the implementation of low-carbon mobility initiatives by increasing the adoption of energy-efficient vehicles (EEVs) as a preferred mode of transportation.

• To provide incentives for manufacturers and users to support the growth and usage of EEVs in Malaysia, to consider various models of EEV while encouraging the utilization of electric vehicles (EVs) domestically.

• To reduce road accidents and road fatalities by improving the safety and security features of vehicles to enhance drivers’ experience. The government also plans to introduce a safety star-rating system for commercial vehicles covering both new and used vehicles.

Comments

• It has been the intention of the government to make Malaysia a regional hub for EEVs by 2020. We believe that the upcoming National Automotive Policy 2019 (NAP 2019) will provide further clarification on how the government would achieve this goal. Our findings show that currently, CBU EEVs are not incentivized. This means that imported hybrid or full-electric car models are not entitled to excise duty exemptions. However, locally assembled hybrid vehicles and EEVs are able to enjoy lower excise duties. At the present moment, there are no fully electric CKD vehicles in Malaysia.

• EEVs are not only confined to electrical and hybrid vehicles. They also include vehicles that meet a set standard of fuel consumption and carbon emission level (Exhibit 2). Vehicles that fall under these standards and classifications shown will be entitled to customized incentives from the government with a range of 65% - 105%, depending on vehicle models.

• Any additional excise duties exemptions or customized incentives will benefit Perodua the most as it has the highest concentration of models under its fleet which are EEV-certified. This covers all models except the Alza. We also note that Mazda’s CX-5 and CX-8, Toyota’s Vios, Honda’s City, Jazz and Civic, and the upcoming Proton X70 CKD may be the key beneficiaries of any incremental changes in incentives as these models are also EEV-certified.

• As the majority of TIV is currently EEV-compliant, we strongly believe it would be best for the government to focus more on incentivizing EEVs rather than the niche market of hybrid and electric vehicles in the local auto sector. As at 8M19, Perodua’s market share stands at 41%.

• We think that raising the safety benchmark for vehicles has its benefits and disadvantages to the local auto sector. It will benefit the auto parts manufacturers as this may spur an increase in demand for safety parts/equipment (such as air bags, shock absorbers, suspensions, sensors etc). However, this may also lead to higher average cost of manufacturing for a car, further thinning manufacturer’s profitability margins if they are unable to pass the cost increase to car owners.

• We look forward to the details of the changes in incentives and how the NAP 2019 will support the growth of EEVs in tandem to reducing the use of carbon vehicles. As of now, we make no changes and maintain our NEUTRAL stance for the auto sector.

• Given the EEV-driven direction of the NTP 2019, we strongly reiterate our BUY calls on MBM Resources and Pecca as higher customized incentives would lower the prices of majority of Perodua vehicles which will spur a higher demand for their products. Pecca is a heavy proxy to Perodua’s dominance in the local automotive space.

Source: AmInvest Research - 18 Oct 2019