We took several institutional investors to the Malaysia Autoshow 2019 held at MAEPS, Serdang. Key takeaway of the event included: (i) Prime Minister, Tun Dr. Mahathir and his view on 3rd national car project, (ii) key model launches from Toyota and Mazda (no new models from Honda), (iv) hints on the upcoming National Automotive Policy (NAP) 2019 and (v) MPOB addressing concerns of B10 implementation. Despite the scepticism of the local automotive outlook, post advanced purchases during the tax holiday period, it was a welcome relief that interests at the autoshow was high. Maintain OVERWEIGHT.

Tun Mahathir: third national car project is crucial, funding driven by private sector

During the launch of the autoshow, Tun Dr. Mahathir reemphasised that the third national car project is crucial to the development of the local automotive sector ecosystem. This project, in Tun M’s view, is expected to create new technology clusters as well as new skilled experts. The government recently approved up to RM20m in research and development grants – a sign that Tun M and his team is committed to spur interest for this initiative. Nonetheless, Finance Minister Lim Guan Eng has reassured that the bulk of the third national car project will still be funded by the private sector. Sime Darby (BUY) could be a potential beneficiary as we learnt that its engineassembly unit, Sime Darby Auto Engineering has expressed interest to participate in this project.

NAP 2019: Futuristic Goals to Prep Malaysia Auto Sector…

Tun M’s ambition was seconded by Mr. Azhar Taib, Deputy CEO of Malaysia Automotive Robotics and IoT Institute (MARii) where he believes the ‘flying car’ idea was misunderstood by most Malaysians; the futuristic policies will be necessary to prep the Malaysian automotive sector to upcoming disruptive trends. A tour to the ‘MARii mobility hall’ has enabled us to appreciate the importance of the Malaysian automotive value chain and to catch a glimpse of the future automotive engineering technology, which may set the tone for the upcoming NAP 2019 (ie. next generation vehicles, mobility as a service and the use of IR4.0). Notwithstanding these bombastic ideas, we think NAP 2019 may include other elements, namely:

(i) Export market expansion (via collaboration with foreign partners, export promotion programmes, abolish multi-sourcing parts),

(ii) Human resource development (via TVET programme),

(iii) Development of End-Of-Life system, (iv) Emphasis on environmental friendly fuel quality and usage of palm oilbased biodiesel,

(v) Refinement of Approved Policy (as opposed to its abolishment under NAP 2009).

The NAP 2019 Is Still Pending and Is Expected to be Launched by 2Q19.

…and Continue to Drive EEV and Localisation Programme

More realistically, we think that NAP 2019 will be the 2nd saga of the NAP 2014, and will continue to promote (i) the development of Energy Efficient Vehicles (EEV) and (ii) localisation programme for Completely Knocked Down cars, by providing more incentives (ie. lower excise duties/more rebates) through the Industrial Linkage Programme Scheme. We expect carmakers with high local content (ie. Perodua, Proton, Toyota, Honda, Mazda, Nissan) as well as the local autopart players (ie. APM Automotive, MBMR, Pecca, Oceancash) to benefit from this policy.

Source: Affin Hwang Research - 15 Apr 2019