The review for the National Automotive Policy (NAP) is expected to be announced by mid-2018. Currently MAI and MITI are deliberating to augment the policy. MAI mentioned that NAP 2018 is an enhancement from the existing NAP 2014 with 4 new pillars namely: (i) next-generation vehicles; (ii) mobility; (iii) industrial revolution 4.0; and (iv) artificial intelligence (AI). We believe NAP 2018 will improve automated manufacturing thus contributing to the growth in Malaysia automotive industry. Maintain NEUTRAL. Our top picks are PECCA (BUY; TP: RM1.72) and DRB (BUY; TP: RM2.88).

We hosted a meeting with Malaysia Automotive Institute (MAI) to discuss the National Automotive Policy (NAP) 2018’s framework and what it entails. NAP 2018 is currently under review and is expected to be announced in July 2018. MAI will further enhance Malaysia’s automotive industry by enhancing NAP 2014 with the addition of 4 pillars which are: (i) next-generation vehicles; (ii) mobility; (iii) industrial revolution 4.0; and (iv) artificial intelligence which will be announced in NAP 2018.

To Recap, NAP 2014’s Main Focus Was on the Development of EEV (Energy Efficient Vehicle) in Malaysia. EEV Is Defined as Vehicles That Meet a Set of Specifications in Terms of Low Carbon Emission Level (g/km) and Fuel Consumption. Since the Introduction of NAP 2014, the Penetration of EEV’s Has Reached 52% in 2017 (from 14.1% in 2014). In 2018, MAI Foresees the Number for EEV Penetration to Surpass the 60% Mark and to Reach 80% Local EEV Penetration by 2020.

The Initial Aim for NAP 2014 Was to be Realized by 2020. However, MAI Believes That Enhancements Are Necessary to be Incorporated in NAP 2018 to Realize the Aims by 2020. New Programs and Measurements Will be Implemented Towards Realizing NAP 2018. They Are Hoping That the Revised Policy Will Improve Malaysia Automotive Industry and Help Boost Vehicle Sales. We Believe That NAP 2018 Will Set a New Direction for Malaysia’s Automotive Industry With the Integration of Technological Advancement.

Next Generation Vehicle. In Line With the Rapid Evolvement of Automotive Technology for the Past Few Years, MAI Is Integrating “Intelligent Mobility” Enhancement Into Existing EEV Initiatives. MAI Foresees a Future With Automated and Unmanned Vehicles on the Road. We Believe the Implementation of “Next Generation Vehicle” Will Start-off With Public Transportation First, Before Broadening Into Commercial Vehicle Usage and Ultimately Passenger Cars.

Mobility. The ease of commuting and transportation is becoming an integral part of NAP 2018. The recent rapid developments of ride-sharing, bike-sharing, fleet-sharing, e-logistic, MRT, LRT etc. have certainly prompted MAI to relook into future mobility of both people and goods. MAI foresees the integration of all transportation system and ride applications, which will improve the time and cost efficiency as well as experience for consumers. However, the system integration will no doubt rely heavily on big data collection, processing and analysis as well as the continuous evolvement of technology trend and application.

Industry Revolution 4.0. The world is moving towards industry revolution 4.0, i.e. smart automated manufacturing and processing. MAI has decided to include industry revolution 4.0 as part of NAP 2018, in order to encourage the automotive industry to adopt the smart automation technology platform - over the Internet of Things, cyber physical systems communicate and cooperate with each other and with humans in real time, and via cloud computing , both internal and cross-organizational services are offered and used by participants of the value chain . The new platform will improve overall efficiency and reduce wastage of resources across the whole value chain of the automotive industry.

Artificial Intelligence (AI). In ensuring the effectiveness of the enhanced NAP 2018, the usage of AI is imminent. AI is the core to the implementation of autonomous driving, connectivity, electrification, and shared mobility. The integration of AI into the overall automotive value chain will bring significant value add to the automotive industry and improve the cost and competitiveness for the industry and consumers.

Maintain NEUTRAL. The sector is expected to be supported by a rebound in TIV growth in 2018, with improvement in consumer sentiment and normalizing impact from tighten bank guideline. While stronger RM will improve the industry margins, the higher basic material costs may partially offset the benefits of RM appreciation. Our top picks are PECCA (BUY; TP: RM1.72) and DRB (BUY; TP: RM2.88).

Source: Hong Leong Investment Bank Research - 13 Apr 2018