KEY INVESTMENT HIGHLIGHTS

• Entered into MoU with PT SGMW Motor Indonesia to explore introduction of the latter’s vehicle products in Malaysia and Thailand

• SGMWMI, via the Wuling brand, is the 9th largest player in Indonesia with ample production capacity for exports

• Still early days, but little exposure/visibility of Wuling PC brand in Malaysia and potentially fresh build-up of network suggest some gestation period

• Maintain NEUTRAL at unchanged TP of RM1.00

What’s new? Tan Chong has signed an MoU with Indonesia-based PT SGMW Motor Indonesia (SGMWMI) to conduct a feasibility study on potential introduction of SGMWMI’s vehicle products in Malaysia and Thailand. The MoU is valid up till Dec2021.

About SGMW Motor Indonesia. SGMWMI is a JV between three automakers comprising General Motors (44% stake), SAIC Motor Corp (50%) and Wuling (6%). SGMWMI commissioned its plant in Indonesia back in 2017 and plans to use the Indonesian plant as a springboard for expansion into South east Asia. However, a production rate of 24,980 units in 2019 implies a utilization rate of just 20% against the plant’s total capacity of 120K units/annum.

How are they performing? Positively, within two years of inaugurating its local plant in Indonesia, SGMWMI managed to gain the 9th spot in terms of sales in Indonesia, registering 22,343 unit sales representing a 2.2% share of Indonesia’s TIV (See Exhibit 1). The group is currently selling four models in Indonesia priced within a range of IDR209m-302m (RM59K-RM85K): (1) Almaz (SUV model, priced at IDR267m-342m) (2) Cortex (MPV model, priced at IDR209m-290m) (3) Confero (MPV model, priced at IDR151m-198m) (4) Formo (Blind & Window Van model, priced at IDR141m-142m) (See Exhibit 2).

Essentially a ‘greenfield’ project. The potential venture by Tan Chong is essentially a ‘greenfield’ venture, requiring intensive brandbuilding, the build-up of fresh sales and after sales network of dealers, with minimal customer traction initially given that the Wuling brand has little exposure/visibility in the Malaysian market currently. As such, while Wuling has proven to do well in Indonesia (given its focus on affordable MPV products which is highly demanded in the Indonesian market), we think it will require a fair bit of gestation period to take-off here.

Source: MIDF Research - 2 Oct 2020