Investment Highlights

• News has been rife that the National Automotive Policy 2019 (NAP 2019) will be presented to the Cabinet for approval soon. We expect the NAP 2019 to be announced in 4QCY2019. Hence, we are providing an overview on our expectations of the NAP 2019 which will set the long-term technology direction and strategies for the automotive sector. The NAP 2019 will be implemented in three phases until 2030.

• Key focus areas expected of the NAP 2019 are:

1. Next-Generation Vehicle (NxGV)
   • Going forward, we strongly believe that the government will continue its green technology thrust, further pushing towards reducing carbon emission levels and increasing efficiency in fuel consumption. To facilitate this, more incentives are likely to be provided to manufacturers and users to support the local growth and usage of energy efficient vehicles (EEVs) in Malaysia.
      
   • The NAP 2019 is expected to drive the automotive sector to the next level, where the focus will be NxGV smart vehicles. The NxGV will be different from the EEV due to the incorporation of more technological advancements with the Internet of Things (IoT). With the rising global trend towards autonomous/semi-autonomous vehicles and the advent of the 5G technology, carmakers and local telcos are expected to collaborate or form partnerships, enabling the IoT in the sector where vehicles will be able to connect and communicate constantly with not only other vehicles, but also with other roadside equipment and traffic signals such as traffic lights and street lights. This will enhance the driving experience (smooth with uninterrupted entertainment) while ensuring the safety of passengers and other road users.
      
   • Beneficiaries may include DRB-Hicom due to its close relationship with Geely. From the Proton x70 model which was rebadged from the Geely Boyue, we were able to experience a Level 2 autonomous vehicle under a China car manufacturer. There are currently six Geely-brand models with Level 2 autonomous driving systems. With that, we are confident that DRB-Hicom will be at the forefront in the local development of the IoT in the auto sector. UMW Holdings also stands to gain from its recent partnership with Telekom Malaysia. It was reported that both TM ONE and UMW would embark on joint research activities to enable the development of an IoT platform to provide enhanced innovative products and services to customers.
      
2. Industrial Revolution 4.0 (IR 4.0)
   • In the recently announced Budget 2020, the government will offer a total of RM5 billion worth of customized packaged investment incentives annually over 5 years as part of the strategic push to attract established companies and global unicorns in high technology, manufacturing, creative and new economic sectors.
      
   • We are excited on this as it will attract investors to the sectors that will support the EEV ecosystem locally in making Malaysia a regional hub for EEVs and NxGVs besides providing more job opportunities for the locals. Beneficiaries will include auto parts manufacturer under our coverage such as APM Automotive, MBM Resources and DRB-Hicom as they stand to gain from the overall improvement of the parts manufacturing ecosystem.
      
3. Mobility as a Service (MaaS)
    
   • MaaS is a consumer-centric centralized model of people transportation and is described as an on-demand, real-time platform that can include any combination of transportation methods — private, public or shared hailing services — to attain door-to-door service in the most efficient (either fastest or cheapest) method. This is envisaged to be carried out via a single mobile application and the availability of highly integrated online payments options.
      
   • Although the MaaS is a long-term plan, this will ultimately benefit consumers as we will then have more options for our transportation choices at affordable and reasonable prices. Planning journeys will be easier and more efficient as it will all be in a single app with a single payment method for all classes of transportation.
      
4. New National Car Project (NNCP)
    
   • From our recent findings, the NNCP is likely to be a C-segment sedan which has yet to be named. The prototype is scheduled to be launched in March 2020 with the first official model expected to debut by March 2021.
      
   • We strongly believe that at the current local technological level, the NNCP will not be a full-electric vehicle. Instead, it will likely be a hybrid vehicle based on an internal combustion engine with an electric propulsion system. As it is likely be a C-segment vehicle, we think that it may not be priced for the mass market but it will be targeting a niche consumer market instead. Hence, we do not expect the vehicle to be produced under NNCP to be a threat to the current national brands of Proton and Perodua.
      
   • The NNCP is expected to benefit our local E&E and automotive semiconductor industries via technology transfers and strategic tie-ups with bigger names, e.g. Daihatsu, Toyota and Geely. We are already seeing some benefits from the Proton-Geely partnership, where many of the newer Proton models have incorporated updated technologies such as the intelligent infotainment system that has enhanced driving experiences at very affordable price-tags.
      

For now, we maintain our BUY recommendations on MBM Resources (FV: RM5.54) and DRB-Hicom (FV: RM3.18).

Source: AmInvest Research - 21 Nov 2019