The new NAP 2020 (enhanced version of NAP 2014) aims to make Malaysia into becoming a regional leader in automotive industry with TIV of 1.22m units and export 250k units by 2030. New focuses under NAP 2020 include: 1) Next Generation Vehicles (NxGVs); 2) Mobility as a Service (MaaS) and Industry Revolution 4.0 (IR 4.0). We expect both Proton (DRB) and Perodua (MBMR, UMWH and Pecca) to be the main beneficiaries of NAP 2020. Maintain OVERWEIGHT with top picks being DRB (TP: RM3.50) and MBMR (TP: RM5.50).

NAP 2020… was recently launched by Prime Minister Tun Dr. Mahathir, with aims to turn Malaysia into becoming a regional leader in automotive manufacturing, engineering and technology by 2030. NAP 2020 is an enhancement version of NAP 2014, expanding on the existing outlines to include new focuses on: 1) Next Generation Vehicles (NxGVs); 2) Mobility as a Service (MaaS) and Industry Revolution 4.0 (IR.4.0). NAP 2020 will incorporate the development of Automated, Autonomous, Connected Vehicles (AACV), light weight material tech as well as hybrid, electric and fuel cell vehicles. We note that NAP 2020 is targeting TIV of 1.22m units and export volume of 250k units (valued at RM12.3bn) by 2030.

Customised incentives… remains in place with focus on the investments in relation to EEV (energy efficient vehicle) and NxGVs. There are still no clear guidelines on the mechanism of customised incentives, which are dependent on several criteria e.g. level of investments, technology transfer, production level, export plan etc. Nevertheless, government will reveal more details of the incentives in one of the upcoming seven roadmaps under NAP 2020.

Third national car… will be a new B-Segment hybrid sedan car. A market debut is expected in March 2021, with production (contracted) set to take place in the first half of 2022. DreamEdge plans to sell at least 3,000 units of the sedan monthly. However, the new national car project is still lacking financial funding and government is inviting potential investors from private sector as government does not intend to invest.

Beneficiaries. We believe both the national marques i.e. Proton (DRB) and Perodua (MBMR, UMWH and Pecca) to be the main beneficiaries of NAP 2020, which is targeting to increase TIV and export volume.

Proton (DRB). The new investments by Proton in a new production line in Tg Malim as well as the better equipped new models line up are already considered in line with NAP 2020 vision. Government is supportive of Proton’s effort (with Geely’s assistance) in new products and technology development. The strong Proton sales growth of 54.7% YoY in 2019 marked improved market confidence into Proton’s new models with improved technology (including safety features), quality and design. Proton is also exploring export opportunities (as targeted by NAP 2020) with its new product line-ups. Unlike other marques, Proton is the only marque that does not have local presences (either local manufacturing plant or regional hub) in various parts of the world. Hence Proton has strong potential growth from export opportunities. It aims to become third largest OEMs in South East Asia by 2027.

Perodua (MBMR, UMWH and Pecca). Perodua is also working to improve its capability in automotive development with the support of Toyota and Daihatsu, in line NAP 2020. Perodua is likely to maintain its stronghold domestic market, while exploring export opportunity with new domestic car development (such as Myvi).

Maintain OVERWEIGHT on Automotive sector, on selective stock approach with 5 BUY and 2 HOLD recommendations. Our top picks are DRB (BUY, TP: RM3.50), MBMR (BUY, TP: RM5.50).

Source: Hong Leong Investment Bank Research - 24 Feb 2020