Highlights

Kuala Lumpur International Automotive Conference 2013 was held on 12-14 Nov 2013, highlighting ASEAN becoming the 5th largest automotive market in the world by 2020 and the future of automotive industry, focusing on development of fuel-efficient and green technology as well as safety and security issues.

The new NAP (National Automotive Policy), indicated to be announced sometime mid Jan 2014, will focus on 2 areas:

1. Enhance competitiveness of Malaysia automotive industries through structural issues; and

2. Become regional hub for EEV (efficient energy vehicle) with high technology uptake among industry players for domestic and international exports.

ELV (End of Life Vehicle) policy is being explored again to ensure road safety and complement the EEV objective.

On the other hand, the government is expected to continue lend supports to the national car producers, for their strategic importance to the country; which is to improve trade balance, create job opportunity, improve skill and technology and increase wealth (income).

KLIMS 2013 was launched on 15 Nov, but notable some prominent OEMs did not participate. Several new models were launched and displayed. See page 2 for more cars.

Comment

Again, to market’s disappointment, the much anticipated new NAP remained unannounced and delayed to 2014, while no concrete details of the NAP were revealed.

Unlike previous NAPs, the new NAP is structured based on engagements and feedbacks from industry players and stakeholders. We are positive on this development, as NAP needs the support and buy-in from the industry (and vice versa) as the first step towards its success.

We expect national cars will be in favour of the NAP, given the continuous government support, improved process (including supply chain), improved products, lower cost (economy of scale), relatively lower priced products and market expansion (exports as well as ELV).

Autoparts and components manufacturers also benefit from the higher volumes of national cars (expansion and export) and foreign cars (increased foreign OEM plants/regional hubs), higher localization rate and ELV.

However, we believe competition for foreign investments among the ASEAN countries will remain intense, as Thailand’s Eco-Car Policy and Indonesia’s Low Cost Green Car Policy, are similar to Malaysia’s EEV Policy.

Risks

1) Slowdown in the Malaysian economy; 2) Global automotive supply chain disruption; and 3) Sudden jump in fuel prices and interest rate.

Rating

Neutral

Positives – Potential export to regional market, i.e. Malaysia as a hub; Implementation of Energy Efficient Policy.

Negatives – Tightening of bank lending rules; Instability of global automotive supply chain; depreciation of RM.

Valuation

Top Pick: Buy on DRB Hicom (TP: RM3.14) and MBM Resources (TP: RM4.70).

Source: Hong Leong Investment Bank Research - 15 Nov 2013