KUCHING: The Ministry of International Trade and Industry’s (MITI) decision to open up the Approved Permits (AP) should not pose a serious threat to the domestic automotive market, analysts say.
In a a statement last week, MITI said it aimed to fully be transparent on the issuance of APs for vehicles and motorcycles and as such, it announced that there will no longer be hard caps on the number APs which can be issued it one year. However, it also pointed out that there will be hard caps on the maximum number of APs which a company can obtain.
“We think this development should not pose a serious threat to the domestic automotive market as we expect the increase in APs to remain confined to the luxury vehicle segment. Near-term applications will likely be postponed to incorporate the National Automotive Policy (NAP) 2019 review essentials which is due to be completed by the first half of 2019 (1H19), we believe,” said the research team at Affin Hwang Investment Bank Bhd (Affin Hwang)
It also pointed out that the evaluation process more stringent despite the limitless AP quota.
It noted that the open AP is an import license granted (under the Customs Act 1967) to qualified Bumiputera companies to import reconditioned vehicles for sale in the domestic market. To qualify as an open AP holder, the company must follow a set of terms which includes being 100-per cent owned Bumiputera (applies to key management roles), shas at least two years’ experience in the automotive business, and a strong financial position.
“About 164 holders (128 existing; 36 new) from the 300 applications received over May 2016 to June 2016 were approved by MITI. We understand that the revised evaluation process from MITI will be more stringent, also including an audit by a qualified independent auditor.
“Should this approval process be properly enforced, we believe it will be tougher for Bumiputera entrepreneurs to qualify for AP entitlements despite the limitless AP quota,” Affin Hwang said.
In the near term, the research team believed this development should not pose a serious threat to the domestic automotive market considering only 36 new companies were granted the approval.
“Per press release information, these new companies are still not fully operational as they are required to fulfil certain technical requirements. We believe that there will be unlikely any offer for new AP application at this juncture because the policy (no plans for abolishment) is still under thorough review under the NAP 2019 to ensure that entitlements are not abused moving forward,” it said, noting that the AP system was supposed to be terminated by end of 2015 under the NAP 2009.
It also pointed out that it is not overly concerned of the marginal increase in AP holders as the domestic market is huge enough to accommodate both new and AP players – luxury (combined BMW and Mercedes-Benz) and AP sales volume grew by 11 and 29 per cent respectively in 2018.
“Moreover, AP sales remains a small fraction of Total Industry Volume (TIV). To highlight, there were about 22,000 to 28,000 AP units sold during 2017/2018 respectively, constituting about four to five per cent of TIV,” it said.
Having said that, it highlighted that any increase in price competition could narrow the price differential of the luxury and mass market car segment, which could inadvertently put some pressure on the latter.
Aside from that, it said, while there might be concerns that an increased number of APs could potentially flood the market and compete directly with the franchise AP holders, the RM10,000 levy imposed on car traders with AP would still ensure that this market is confined to the high margin high-end models.
“As such, we do not anticipate a heightened competitive environment and prices of cars should remain largely unchanged, we believe,” it said.
All in, Affin Hwang said: “We maintain our ‘overweight’ rating as we expect vehicle sales momentum to remain healthy and strengthening of ringgit to US dollar and Japanese yen to lift profit margins.”