Investment Highlights

Key highlights of the National Automotive Policy 2020 (NAP 2020):

• The NAP 2020 will be an enhancement of the NAP 2014, where the policy will continue to focus on the development of energy efficient vehicles (EEV). The policy will be implemented in 3 phases over the next 10 years.

• While we commend the government’s efforts to further grow the local automotive sector in the long term as it is an integral part of the Malaysian economy, we believe that it will take some time before the initiatives slated would come to fruition. Until we get more clarity and information about the initiatives and policies mentioned in the NAP 2020, we make no changes to our stock calls and sector recommendations as it is a long-term plan with no immediate impact to the auto sector.

• Given the EEV-driven direction of the NAP 2020, we strongly reiterate our BUY calls on MBM Resources and Pecca Group as higher customized incentives would lower the prices of majority of Perodua vehicles will consequently increase the demand for its EEV-compliant cars. Notably, Pecca is a heavy proxy to Perodua’s dominance in the local automotive space.

• For now, we maintain our NEUTRAL stance on the auto sector with a TIV projection of 610K units for 2020. We continue to be optimistic on the national car marques Proton and Perodua for 2020, while we stay cautious on the foreign and premium car brands as consumers are more careful and conservative with their discretionary spending, indirectly benefitting the cheaper and better value-for-money vehicles. We note that the sector is possibly in the midst of an upward reformation of foreign marques’ CKD pricings which further augur Proton and Perodua’s continued dominance in the auto sector.

• The NAP 2020 continues to push towards the utilization of greener energy, reducing carbon emission and pollution:

(a) The government will continue issuing the EEV manufacturing licence, while introducing the next-generation vehicle (NxGV) manufacturing licence and freeze the issuance of the non-EEV manufacturing license.

• We believe that the freeze on the issuance on the non-EEV manufacturing licence means there will not be new permits for locally manufacturer of non-EEV compliant vehicle models. It is still uncertain when the freeze will take effect as there is no further details at this juncture.
• We do not expect Proton to be affected as the national carmaker has already secured licences to manufacture its current vehicle models earlier, prior to the launch of the NAP 2020. Note that of all vehicles under the Proton fleet, only the X70 is EEV-compliant. We expect the upcoming X50 to be EEV-compliant as well.

(b) EEV-customized incentives to continue as per the NAP 2014. However, it was highlighted that the incentives for hybrids, PHEVs (plug-in hybrid electric vehicles) and EVs (electric vehicles) have yet to be finalized. The government is still in the midst of understanding and weighing the demands of the public, consumers and carmakers before making a decision.

• We are mildly positive on this update. As Perodua’s entire product fleet is EEV-compliant with the exception of the Alza, the group can continue to leverage the reduced excised duties on its products from the retention of EEVcustomized incentives.

• With the continuation of EEV-customized incentives, Perodua can continue to price its products competitively, which is essential for the group to maintain its compelling sales volume and local market share. Hence, we continue to like MBM Resources (MBMR) as it stands as a direct proxy to Perodua’s dominance sales volume in the sector.

Source: AmInvest Research - 24 Feb 2020