Journey towards greener roads via EEV ahead of schedule — Analysts

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The models that quality for such incentives are all required to be produced local and the extent of incentives given to them depends on the value-add that they bring to the local economy such as critical part localisation, research and development (R&D), exports and job creation. — Reuters photo

KUCHING: The journey to greener roads through the 2014 launched Energy Efficient Vehicle (EEV) program, that aims to position Malaysia as a manufacturing hub of energy efficient cars in the region, is ahead of schedule as local EEV penetration has improved from 42.8 per cent in 2016 to 52 per cent in 2017.

According to MIDF Amanah Investment Bank Bhd (MIDF Research), actual EEV penetration rates for both years were ahead of their targets of 40 and 50 per cent respectively.

Moving forward, the research arm also guided that the Malaysia Automotive Institute (MAI) would be targeting EEV penetration to increase further to 60 per cent this year.

“EEV production is expected to increase 13 per cent to 350,000 units this year (and) Datuk Seri Mustapa Mohamed, Minister of International Trade and Industry (MITI) also highlighted of possible one new vehicle assembler setting up shop here this year,” guided the research arm.

To date, the EEV program with the help of customised government incentives such as duty rebates has successful attracted 19 original equipment manufacturers’ to offer EEV-qualified models into the Malaysia market.

The models that quality for such incentives are all required to be produced local and the extent of incentives given to them depends on the value-add that they bring to the local economy such as critical part localisation, research and development (R&D), exports and job creation.

Looking at the whole of the automobile industry, the MAI is understood to be targeting a total industry volume (TIV) growth of 2 per cent year over year (y-o-y) to 586,000 to 591,000 thousand units in 2018 from the 575,000 to 580,000 base units seen in 2017.

In comparison, MIDF Research’s 2018 TIV growth target is slightly lower at 1.7 per cent y-o-y.

“While TIV growth forecast is not entirely exciting, FY18F sector earnings will be driven by margin expansion from a stronger ringgit and a roll back in discounting as inventory pare down in the system stabilises,” said the research arm.

Additionally, the automotive sector is also expected to see solid performance for vendor development and parts and component exports as well in 2018.

Referring to the MAI 2017-2018 sector outlook briefing on Thursday, MIDF Research detailed that the MAI expects Level 3 vendors to increase by 6 per cent to 430 suppliers, Level 4 vendors by 33 per cent to 120 suppliers and Level 5 vendors by 48 per cent to 40 suppliers.

Additionally, the organisation also expects exports of parts and component exports to continue on their steady growth path and see a further increase of 4 per cent to RM12.5 billion in 2018.

Unfortunately, completely built units (CBU) exports are not expected to follow this growing trend as their performance has been extremely disappointing in 2017 with only 18,887 units of CBU export achieved under a target of 31,000.

“The Minister (Mustapa) indicated the growing exports of CBUs will be a key focus going forward, but material development is only likely to be achieved within the next 5 years, and not in the next 2-3 years,” said the research arm.

All things considered, MIDF Research is optimistic on the outlook of the automotive sector in 2018 and has reaffirmed their ‘Overweight’ rating on the sector and has announced Bermaz Auto Bhd (BAuto) as their top sector pick.

According to the research arm, BAuto is expected to perform well in 2018 as they are riding on several tailwinds.

For 2018, MIDF Research is expecting BAuto to see a 20 per cent y-o-y growth in their Mazda TIV due to its CX5 launch; a more than double in associate earnings contribution due to its export market expansion into South East Asia and production acceleration in the domestic market; and value unlocking from the listing of its Philippines unit.