Launched by Prime Minister, Tun Dr Mahathir, the National Automotive Policy 2020 (NAP20), is an enhancement of NAP 2014, aimed to nurture Malaysia towards becoming a regional automotive champion. Overall, the NAP20 will be implemented in three phases up until 2030, but we think the forward looking policies will unlikely impact the traditional automotive sector over the near-medium term. Business as usual, maintain NEUTRAL on the auto sector.

Setting High Standards in NAP20 Framework

To ensure that Malaysia’s automotive industry is on pat with global standards, NAP20 has introduced three new elements, namely i) Next Generation Vehicles (NxGV; at least level 3 conditional automation), ii) Mobility as a Service (Maas: an efficient centralised mobility service) and iii) Industrial Revolution 4.0 (ie IoT, Big Data Analytics and AI) in the framework. In addition, the 10-year policy has broadly outlined 3 directions and 3 strategies to bring these 3 elements into fruition. While we are positive on the framework, near term we think that the NAP20’s 2030 targets are ambitious, considering the stiff competitive landscape among carmakers and slackening demand in the automotive industry.

No Change to Excise Duties or Incentives

Importantly, the NAP20 launch did not unveil new incentives or policies on taxes and duties. Instead, incentives as well as taxes and duties will continue to be deliberated by the Automotive Business Development Committee before being approved by the Ministry of Finance.

Other Highlights of the NAP20

• Franchise Approved Permit Policy will be continued; NAP 09 specified for the termination of Franchise AP by Dec 20.
• Dedicated Industrial zone to undertake recycling and remanufacturing operations.
• A new Cyberjaya facility to spearhead development of autonomous, connected, electric and energy efficient technology for vehicles.
• to facilitate adoption of B30 biodiesel mandate by 2025, which will help support the Malaysia’s palm oil industry.
• Government to Evaluate the Granting of Customised Incentives.
• Tun M reaffirms the third national car project’s will be funded by private sector.

Maintain NEUTRAL; Top Buy / Risks

We maintain our NEUTRAL rating on the auto sector. Our sector top pick is MBM Resources for its appealing valuation. Key risks to our sector call include: 1) higher-/lower-than-expected car sales volumes, 2) tighter/looser bank lending policies, 3) intensifying price competition; 4) fluctuation of the RM vs. US$/JPY, 4) delays on new car pricing approvals, and 5) worsethan-expected economic slowdown that affects market sentiment.

Source: Affin Hwang Research - 24 Feb 2020