We maintain Buy on DRB-Hicom Bhd, with a fair value of RM3.65/share – a 15% discount to our SOP value of RM4.31/share. The government yesterday unveiled the new National Automotive Policy (NAP). The highlights include:-

1. The NAP aims to transform Malaysia into a regional automotive hub in energy-efficient vehicles (EEV).

2. Apart from hybrid, electric and alternative-energy vehicles, conventional vehicles can be classified as EEVs as long it also fulfils fuel efficiency and carbon emission requirements (Refer to Tables 1 and 2 on Page 4). The incentives will be customised on a case-by-case basis.

3. The incentives include pioneer status, investment tax allowance, R&D and training grants, infra-facilitation, and tax breaks. A financial package of RM2bil comprising RM1.89bil in soft loans and RM175mil in grants for human capital and Bumiputera development will be offered.

4. Excise duty cuts are not among the incentives, but the exemption of excise duties and import tax for locallyassembled hybrid cars and electric vehicles will be extended until 31 December 31, 2015 and December 31, 2017, respectively.

5. National manufacturers will continue to obtain government support in the form of R&D grants and soft loans, as well as assistance in market expansion, increase in productivity and quality, cost reduction and in the development of the supply chain.

6. A framework has been developed to fulfill the promise of gradual car price reduction ranging between 20% and 30% over the next five years.

- DRB-Hicom’s unit Proton will be a beneficiary of the absence of a cut in excise duties. Nonetheless, we are of the view that Proton still needs to step up the game in improving quality and standards as well as in price competitiveness. DRB-Hicom also owns an 81% stake in Modenas, the national motorcycle manufacturer.

- Proton will produce and compete in the EEV market, with a planned production of a hybrid model. Its global small car project could also benefit from NAP incentives. Also in the fray is DRB-Hicom’s 34% associate Honda Malaysia, which targets to be the number one hybrid hub in Asia-Oceania by 2016.

- Another unit Puspakom now holds the concession to undertake mandatory inspections of commercial vehicles. It will benefit from a proposal under the NAP that passenger vehicles undergo voluntary inspections as well. We maintain our numbers.

Source: AmeSecurities