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Maybank IB is positive on car sector

KUALA LUMPUR: The automotive sector received a ‘positive’ call following the Ministry of International Trade and Industry’s (MITI) proactive measures to address issues and concerns related to duty/tax incentives approvals for locally assembled vehicles.

Maybank IB Research said MITI has outlined strategies to review on the energy efficient vehicle (EEV) customised incentive applications introduced in 2014 National Automotive Policy (NAP).

The research house noted that the initiatives would create a level playing field for EEV manufacturers in the country although details have yet to be ironed out.

“These new measures will likely feature in the 2019 NAP, to be released by end of first-quarter of 2019,” it said in a research note today.

However, with the new development, Maybank IB said total industry volume (TIV) might be negatively impacted as consumers adopt a wait-and-see approach.

“Our 2019 TIV target of 590,000 units, decrease by one per cent year-on-year,” it said.

Maybank IB said each EEV manufacturer can engage in a direct negotiation for a tailored incentive structure based on the respective manufacturer’s needs and contributions based on the NAP 2014.

“In addition, to enhance the timeliness and transparency for the approval of incentives for EEV manufacturers, the Automotive Business Development Committee (ABDC), under MITI, will now meet twice a month instead of monthly,” it said.

ABDC is tasked to deliberate on applications for the industrial linkage programme and customised incentives for EEV manufacturers.

On the reduction of excise duty for complete- knock down (CKD) vehicles, MITI had maintained that the loss of government revenue in excise duty can be offset with higher industry volume – a win-win situation for both.

“A lower duty regime, should it be announced, would be a positive advancement towards liberalising the industry. Currently, excise duty on imported components for CKD passenger cars ranges from 75 per cent to 105 per cent, depending on engine capacity,” it added.

Maybank IB believed companies with higher CKD car sales would benefit, citing that those with over 40 per cent imported content will have more room for duty reduction.

For example, CKD (Japanese and Continental models) versus national marques such as Perodua, the imported content is less than 10 per cent.

However, marques with high complete-built unit (CBU) exposure will face more competition.

Maybank IB said the Industrial Linkage Programme (ILP) allows for a certain level of reduction in excise duty based on the localisation of components for respective CKD car models.

“We believe that excise duty reduction, if any, would likely be implemented with conditions that more components are localised in order to spur the local ecosystem. Hence, we expect Toyota, Honda, Nissan, Mazda, Mercedes Benz, BMW and Volkswagen marques would benefit more than the national marques such as Proton and Perodua.”

The Japanese and continental marques both have CKD models with relatively lower localisation rate compared to national marques.

It said lower localisation rate offers more room for car manufacturers to further establish its local supply chain and reap the benefit of lower excise duty.

“We believe that the local auto parts supply chain such as APM Automotive, EP Manufacturing, Pecca Group will emerge the biggest beneficiaries of higher component localisation.”

On NAP 2019 wishlish, Maybank IB said the end-of-life vehicle (ELV) policy needs to be implemented to reduce congestion and remove unworthy vehicles on the road with long-term sustainability of the automotive ecosystem.

“We believe the ELV policy could be implemented within three to five year in an effort to prepare the consumers as well as the industry for this exercise.”

Among the concerns that need to be addressed include the volume impact for the industry for cars more than 20 year, sufficiency of inspection centres (existing car service centres may be empowered to carry out inspections), and quantum of tax and excise duty exemptions as well as other incentives (if any) for owners to scrap their cars to own a new one.

Source: NST