CIMB Research expressed its disappointment of what is and what is not in the National Auto Policy (NAP) 2014 and rated the sector as neutral with Edaran Tan Chong Motor Holdings remaining its top pick of the sector with an add recommendation.
Unveiled yesterday, the main initiative of NAP 2014 aimed at making Malaysia the regional hub for EEVs, which will see the Government providing soft loans of RM2 billion and issuing three to four EEV manufacturing licenses by 2018.
To kick-start the EEV program, the exemption of excise duties and import taxes for CKDs will be extended till Dec 31, 2015 for hybrids and Dec 31, 2017 for electric vehicles. Beyond those dates, the exemptions would be determined based on the strategic value of what the CKDs bring and their respective investments.
The exemption of duties for hybrid completely built up (CBU) vehicles ended on Dec 31, 2013, but CBUs that were imported in 2013 and sold in 2014 will still be exempted from tax and duties.
CIMB Research has marked Honda Malaysia as a likely immediate beneficiary with Honda’s initial investment of RM382 million — and up to RM1 billion — for the second line at its Pegoh, Malacca plant putting it of the pack. The second line started production in 2013 and will have an annual capacity of 50 000 hybrid and small car units.
Consequently Honda will likely obtain the first energy efficient vehicles (EEV) manufacturing licence and will also be allowed to sell its completely knocked down (CKD) units exempt of all duties and taxes, opined CIMB.
Additionally, its new line at Malacca will enable it to meet its sales target of 76,000 units in 2014, an increase of 40% year-on-year (y-o-y), and 100 000 units by 2016, allowing it to capture Toyota’s top spot in the non-national segment as UMW Toyota has not finalised its EEV strategy.
“Although DRB-Hicom will benefit from Honda’s EEV advantage, its 34% stake in Honda Malaysia will not offset Proton’s uncertainties following the NAP 2014,” said CIMB.
On the other hand, CIMB Research noted that Proton stands to lose the most in the increasingly challenging environment given that the government’s “overly optimistic” 2020 total industry unit sales target of one million units from 650,000 in 2013.
The government expects 250,000 of those units being EEVs, along with RM10 billion in EEV-related components for export. NAP 2014 is also expected to create 150,000 new jobs.
“With the government’s projected sales of one million units by 2020, industry sales growth is expected to accelerate to register a compound annual growth rate (CAGR) of 6.5% over the next six years. We believe that this is overly optimistic, especially if the credit cycle turns and with the market already saturated.” said the bank-backed research house, noting that there will likely be two mass rapid transit (MRT) lines operating in the Klang Valley by then.
CIMB added that exports will be crucial to drive sales growth for Malaysian manufacturers and said the replacement cycle will not be enough to spur significant domestic sales.
“Based on the 16 million vehicles registered in 2006 increasing to 20 million in 2013, we estimate that just over 50,000 vehicles were taken off the road or scrapped over the last seven years,” said CIMB.
The research house noted that the implementation of an ELV policy is necessary to jump-start the replacement cycle as without such a policy, it will be difficult for total industry sales to reach one million units by 2020, especially with the onset of the Klang Valley MRT network.
As for Proton, CIMB expects the national carmaker’s fragile mid-range market share to be threatened by the EEV CKDs while its bread-and-butter low-end products will not have the support of an end-of-life vehicle (ELV) policy, which CIMB notes that the NAP 2014 did not contain.
“Tan Chong is the only clear winner from NAP 2014. It is already prepared to move from selling Serena hybrid CBUs to CKDs in 2014 and is looking forward to the launch of an A-segment vehicle (likely EEV) in 2015,” said the bank-backed research house, noting that Edaran Tan Chong Motors are their only positive choice.