- MBM’s unit, Federal Auto Holdings, has entered into an MoU with SAIC (NOT RATED) to formalise discussions to reintroduce the MG brand in Malaysia. SAIC is one of the largest automakers in China and sold 4.5mil vehicles last year. The MG brand was most recently carried by Brooklands in Malaysia, before MG Rover went bust.

- Nanjing Automobile acquired MG in 2005 for USD97m following the collapse of MG Rover. Nanjing Auto was then merged with SAIC in 2007. MG’s major R&D facility still resides in Longbridge, UK but since the acquisition, CKD kits are principally manufactured in China, and shipped to the UK for final assembly and sales in Europe. Besides owning two brands, i.e. MG and Roewe (shares certain platforms with MG but positioned as a luxury brand), SAIC has JVs with VW (since 1984) and GM (since 1997) – which generate the majority of SAIC’s groupwide sales.

- MG’s key markets are in China and the UK currently. Sales in the UK totalled 782 vehicles in 2012 (0.04% market share, unit sales: +117% YoY), while China sales amounted to 72,516 units (0.5% market share). The group underwent a major re-launch in 2011 with the new MG6 (1.8 litre mid-sized sedan) model.

- As part of the re-launch, SAIC has allocated GBP4.5bil for R&D up till 2016 – so far half of this has been spent. Other new models in the pipeline include the MG3 (1.3 – 1.5 litre small car) this year, and a turbocharged variant of the MG5 (1.5 litre mid-sized hatchback). MG also unveiled a concept SUV unveiled at the Shanghai motor show, targeted for launch in 2015-2016.

- In a move to break out of its home market, MG last year entered into a 51:49 JV with Thailand’s CP Group to produce and sell MG cars in Thailand (and ASEAN) with an initial capacity of 50K a year. The group aims to raise this to 200K a year eventually. Total investment is USD289mil (RM881m) and it aims to start sales in 2014. A re-launch of the MG brand in Australia is also in the works and targeted to take off this year.

- It is still early to gauge the impact on MBM as talks still look to be preliminary. Discussions also involve local assembly of MG models (which may source CKD kits produced by the Thai plant). Nonetheless, SAIC is serious in re-launching the MG brand name worldwide judging by the investments it is undertaking. This might be the first passenger car deal that will help MBM utilise its comprehensive manufacturing licence and grow its core earnings (currently c.70% of bottomline is contributed by associates, Perodua and Hino) and is one of the key catalysts to drive a valuation re-rating at MBM. Maintain BUY with an unchanged FV of RM4.60/share.

Source: AmeSecurities