• We maintain our NEUTRAL stance on the auto sector with a TIV projection of 610K units for 2020.

• There has been recent news about a potential restructuring of excise duties which may impact the prices of vehicles.

• However, it is still uncertain on how excise duties will be restructured. Potentially, CKD car prices could increase this year due to the government’s new excise duty regulation which was gazetted on 31 December 2019. Current excise duties imposed on vehicles varies from 60% – 105% depending on car models and makes.

• Our channel checks revealed that there could be a change on the open market value (OMV) of vehicles and this could impact the excise duties imposed as excise duties are based on the OMV. If this is true, the new OMV calculation for CKD models may include royalty fees, dealership margin fee and also assembly charges. However, we are unsure of its quantum and other variables involved as there is no official information available.

• We believe that this is part of the reason for the delay in Bermaz Auto’s (BAuto) pricing for the new CX-5 and CX-8. Some models in the market have been delayed for up to seven months due to the lack of clarity in the government’s updated tax incentives and policies for locally assembled vehicles.

• We noticed that there was a price hike of approximately RM2.1K in all ranges for the Mazda’s 2019-facelifted CX-5. We believe that this was due to the new gazetted new OMV calculations. This has translated into a price increase of about 2%. If this were to happen to all major car marques and its respective CKD models, we believe that the extra costs will be passed down to the consumers.

• We reckon that an increase of 2% in CKD car prices will be slightly negative for the sector as it is only a small rise, thus not expected to heavily impact consumers’ decision for car purchases. We are hopeful that the government will announce further information soon and provide more clarity on excise duties and the derivation of OMVs.

• Even if car prices do increase in tandem with the new excise duties structure, we are still optimistic on national marques Proton and Perodua as they offer cheaper and better value for their cars.

• We have BUYs on MBM Resources (FV: RM5.54), DRB-Hicom (RM3.18) and Pecca (RM1.46).

Source: AmInvest Research - 21 Jan 2020