Kenanga Research & Investment

Automotive - Malaysia Autoshow 2024: EV the Way Forward

Publish date: Fri, 14 Jun 2024, 10:37 AM

We attended the Malaysia Autoshow 2024 during which leading global automotive companies unveiled their latest innovation, particularly, next-generation electric vehicles (EV), in sync with the aspiration of the National Automotive Policy (NAP 2020). We believe the demand for EV will be buoyed by droves of new EV models and the recent reduction in the road tax for EV. We raise our CY24 total industry volume (TIV) projection by 4% to 740k units (from 710k). We are also taking a more bullish view on Perodua’s D66b and EV model slated for launching next year. We believe while it will be business as usual for the affordable segment, fuel subsidy rationalisation will likely hurt the demand for mid-market models, giving rise to a two-speed automotive market locally in CY24. Our sector top pick is MBMR (OP; TP: RM6.30), which is a good proxy to the affordable and fuel-efficient Perodua brand. It also offers an attractive dividend yield of about 7%.

Malaysia Autoshow 2024

Held on 21-26 May 2024 at the Malaysia Agro Exposition Park Serdang (MAEPS), the event has generated potential sales of RM1.4b comprising among others, 2,620 vehicle bookings, 13,799 sales leads and 15 memorandum of understanding (MOUs) and memorandum of agreement (MOAs) signed between industry players. This year’s event attracted 223,876 visitors (+17% YoY), surpassing previous records. The event featured concept vehicles, electric and efficient internal combustion engine (ICE) vehicles, autonomous driving demonstrations, modified cars, classic automobiles, campervans, and military vehicles.

An interesting observation was EV models accounted for 50% of vehicles showcased, aligning with the National Automotive Policy (NAP) 2020 and the New Industrial Master Plan (NIMP) 2030 which give emphasis on greener and more efficient technologies. During the event, several significant forums and summits took place, including the 50th Commemorative Malaysia-China Automotive Summit, the 13th Asian Automotive Environmental Forum (AAEF), and MyMAP Grand Prix Award 2024.

Among the brands showcased were from new players in the Malaysian market i.e. BYD, Tesla, Chery, Jaecoo, Tiggo, GAC, GWM and ORA, as well as seasoned players Perodua, Proton, Toyota, BMW, Honda, and Nissan.

New launches previewed during event included Toyota BZ4X EV, Perodua emo-1 EV concept, Tesla Cybertruck (SUV), BYD BAO 5 (4x4 SUV), Nissan e-Power hybrid, GWM Tank 300, Haval 6 hybrid, GAC Aion Y Plus, Jaecoo J6 EV, Jaecoo J7, Cherry Omoda 5, Chery Tiggo 8 Pro e+ PHEV, Neta X EV SUV, Jetour Dashing (see Page 5).

NAP 2020 Mid-Term Review in the Works

The Ministry of Investment, Trade and Industry (MITI) and Malaysia Automotive, Robotics and IoT Institute (MARii) are undertaking a mid-term review on NAP 2020 to take into account the breakneck advancement in automotive technology especially energy-efficient vehicles (EEV) and electric vehicles (EV). The progress of the national EV project by Perodua, the EV production by Proton and the development of Automotive High-Tech Valley (AHTV) by DRB-HICOM (MP; TP: RM1.40) will be assessed under the review.

Recall that, the main objectives of the NAP 2020 are to: (i) develop Malaysia as a regional hub for the production the Next Generation Vehicles (NxGV), (ii) expand the participation of domestic automotive industry in mobility as a service (MaaS) ecosystem, (iii) ensure the domestic industry is equipped with Industrial Revolution (IR) 4.0, (iv) ensure the overall ecosystem receives maximum benefit from the NxGV ecosystem, and (v) reduce carbon emission from vehicles by 2025 in line with the ASEAN Fuel Economy Roadmap of 5.3 LGE/100km.

Road Tax for ZEV Slashed

Meanwhile, the road tax for zero-emission vehicles (ZEV) will be cut by an average of 85% effective 1 Jan 2026, subject to revision every five years to ensure it continues to entice transition to ZEV without significantly eroding government revenues (see Page 3). For comparison, under the new mechanism, EV road tax charge is RM70 for Hyundai Kona e-lite vs. RM243 under previous mechanism, while on the higher end, EV road tax charge is RM6,715 for Porsche Taycan Turbo GT vs RM17,494 under previous mechanism (see Page 4).

We Raise our CY24 TIV Projection to 740k

We raise our CY24 TIV projection by 4% to 740k units (from 710k units), bringing ourselves in-line with the forecast of Malaysia Automotive Association (MAA). We believe that the boatload of new EV launches and the recent cut on EV road tax will help to spur the demand for electric vehicles. Recall that, current EV line-ups are all imported that have RM100k regulated floor price as well as units limitation distributed per month. On the other hand, we believe while it will be business as usual for the affordable segment, fuel subsidy rationalisation is more likely to hurt the demand for mid-market models (alternatively they can opt for EV to cut their fuel bills), giving rise to a two-speed automotive market locally in CY24.

We believe a new car is still an affordable luxury for most Malaysian households despite the high inflation and a slowing global economy underpinned by: (i) strong consumer confidence supported by a stable economy and a healthy job market, (ii) the affordability of motor vehicle underpinned by stable new car prices thanks to the deferment of new excise duty regulations (that could have resulted in prices of locally assembled vehicles increasing by 8%-20%) and potentially cheaper hire purchase cost with the introduction of the reducing balance method in the calculation of interest charges, and (iii) attractive new models.

We believe it will be business as usual for the affordable segment as its target customers, i.e. the B40 group, will be spared the impact of the impending fuel subsidy rationalisation and also could potentially benefit from the introduction of the progressive wage model. However, the same cannot be said for the mid-market segment as its target customers, i.e. the M40 group may hold back from buying a new car (or even down trade to a smaller car or switching to electric vehicles to cut their fuel bills) upon the introduction of fuel subsidy rationalisation. In general, the industry’s earnings visibility is still good, backed by a booking backlog of 200k units as at end-May 2024. More than half of the backlog is made up of new models, alluding to how appealing new models are to car buyers. This trend is likely to persist throughout CY24 given a strong line-up of new launches.

Vehicle sales will be supported by new BEVs that enjoy SST exemption and other EV facilities incentives up to CY25 for CBU and CY27 for CKD. BEV new registrations have leapt from 274 units in CY21 to over 3,400 units in CY22 and 10,159 units in CY23, with 2,703 units for YTD April 2024 and are on track to meet national target for EVs and hybrid vehicles of 15% of total industry volume (TIV) by CY30, and 38% of TIV by CY40. Meanwhile, the government’s pledge to enable charge point operators (CPOs) to secure faster approvals for installation provides comfort as currently only 3,951 EV charging stations have been built to-date.

Changes to Forecasts, TPs and Calls

We expect improved product mix for MBMR and SIME, buoyed by the high-margin all-new Perodua D66b to be launched in early-2025 (which was delayed due to more stringent safety checks) and Perodua EV model by end-2025. We expect MBMR’S manufacturing business to benefit from the production of Perodua D66b and the maiden contribution of the Jaecoo brand in the 2HFY24, while SIME will also be buoyed by stronger performance from BMW Malaysia on higher sales and margins in FY24.

MBMR: We raise our FY24-25F net profit forecasts by 5% and 7%, respectively, lift our TP by 9% to RM6.30 (from RM5.80) and maintain our OUTPERFORM call.

SIME: We raise our FY24-25F net profit forecast by 4% each, similarly lift our TP by 4% to RM2.90 (from RM2.80) and upgrade our call to OUTPERFORM from MARKET PERFORM.

Source: Kenanga Research - 14 Jun 2024

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