The 4th Kuala Lumpur International Automotive Conference that was held recently highlighted on: (i) the impact of ASEAN Economic Community (AEC) towards the automotive and components sector, (ii) key trends on the global automotive industry, and (iii) the future of Malaysia’s auto industry. Meanwhile, as for the much-awaited National Automotive Policy (NAP) that is targeted to be announced in the mid of January 2014, while not much details were disclosed, we believe that a comprehensive mix of fiscal incentives, duty exemptions (particularly in the extension of tax exemption for CKD Hybrid Vehicles), customized training and R&D grants will be included in the NAP review. These measures are to enhance the competitiveness of the Malaysian automotive industry and making Malaysia the regional hub for Energy Efficient Vehicles (EEV) with high technology uptake among industry players for domestic and regional and international exports.

On a separate note, according to the data from the Malaysian Automotive Association (MAA), the October total industry volume (TIV) came in marginally lower at 55,078 units, reflective of the normalisation from a high base last year as earlier anticipated. On a YTD basis, the 10MCY13 TIV growth remained unchanged at 6% YoY growth to 543,048 units, making up 85% of both our 2013 TIV forecast of 636,560 and MAA’s forecast of 640,000 units, respectively; thus in line with expectations. We are maintaining our NEUTRAL rating on the sector and retaining our 2013 TIV forecast of 636,560 units (+1.4% YoY) as we are anticipating a lower 4Q13 YoY growth due to the normalisation base effect as well as the weaker consumer sentiment being dented by the ongoing subsidy rationalisation.

Impact of ASEAN Economic Community (AEC) towards the automotive and auto components sectors. We gather that the aspiration from the AEC paves the way for ASEAN to grow its regional automotive sector. With a more comprehensive economic integration among ASEAN countries by: (i) removal of import tariffs and non-tariff barriers for trade in goods, (ii) liberalisation of the services sector covering all the four modes of supply and removal of market access limitations, (iii) creating a liberal investment regime; a single market and production base could be shaped with higher competitiveness and efficiency among the ASEAN countries. Meanwhile back home, we understand that: (i) dismantling of AP System, (ii) adoption of higher fuel standards, (iii) introduction of vehicle end of life policy would lend strength to the automotive and components industry in Malaysia. (please refer to page 2 for further details).

Key trends in the global automotive industry. In light of the world energy and environmental crisis, the global automotive industry is now in the midst of a revolution in energy efficient vehicles (EEV). These are evidenced with internal combustion engines (ICE) with better fuel energy technologies, hybrid electric vehicles with a combination of gasoline & electricity as the energy source and electric vehicles widely used in the advanced countries around the world. Of noteworthy, besides being environmental friendly, these technologies give lower transport/mobility cost per distance, lower capital cost as well as lower operational cost in terms of ownership for the consumers. Going forward, Bosch Group, one of the major automotive components players, believes that the market share forecast for petrol and diesel will reduce from 88% in 2012 to 83% in 2020, with their market share being clawed by EEV.

What could be entailed in the upcoming NAP for the future of Malaysia’s auto industry? From the conference, we gather that the upcoming NAP would entail: (i) enhancing the competitiveness of the Malaysian automotive industry through resolution of structural issues, and (ii) making Malaysia the regional hub for EEV with high technology uptake among industry players for domestic and regional and international exports. While there are not much details mentioned during the conference, we believe that a comprehensive mix of fiscal incentives, duty exemptions (particularly in the extension of tax exemption for CKD Hybrid Vehicles), customized training and R&D grants will be included in the NAP review judging from the framework mentioned during the conference.

October TIV growth registered flat growth YoY and MoM on a high base effect as anticipated. The TIV in October came in lower by 1% YoY to 55,078 units, reflective of the normalisation from the high base last year (due to the aggressive marketing campaign previously) as anticipated. Meanwhile on a MoM basis, TIV also registered flat growth dragged down by both national marques despite the launch of the new Toyota Vios. As a result, the 10MCY13 TIV growth remained unchanged at 6% YoY to 543,048 units, making up 85% of both our 2013 TIV forecasts of 636,560 and MAA’s forecast of 640,000 units, respectively, which is in line with expectations.

Pallid passenger vehicle sales dragged down by national marques. Both Perodua and Proton sales saw monthly and yearly contraction which we believe are due to (i) the purchase pullback due to effects felt from the subsidy rationalization, (ii) ‘wait-and-see’ attitude adopted by consumers in anticipation for vehicles purchase incentives in the Budget 2014. On the other hand for the non-national marques, Toyota, Honda and Nissan, all recorded a positive MoM growth with Toyota outperforming it peers thanks to its new Vios.

Still NEUTRAL on the sector. We are maintaining our NEUTRAL rating on the sector and retaining our 2013 TIV forecast of 636,560 units (+1.4% YoY) despite the YTD (September) growth of 6% YoY as we are anticipating a lower 4Q13 YoY growth due to the normalisation base effect as well as the weaker consumer sentiment being dented by ongoing subsidy rationalisation. 

Source: Kenanga