Green light for auto assembly plants a welcome move

0

The ministry has reinstated automotive manufacturing to the approved list of services in economic sectors allowed to operate during MCO 2.0. — AFP photo

 

KUCHING: Analysts were positive on the Ministry of International Trade and Industry’s (MITI) green light for all automotive assembly plants covering vehicle and component manufacturing to continue operations, with the activity restored to the essential services list as at January 16, 2021.

The ministry has reinstated automotive manufacturing to the approved list of services in economic sectors allowed to operate during the second movement control order (MCO 2.0).

“Vehicle production and component manufacturing were included in the initial directive issued on January 12, 2021, but an update to the document less than 24 hours thereafter saw them being omitted, with a specific footnote mentioning that automotive assembly and manufacturing activities were no longer included in the permitted list,” the research arm of Kenanga Invesment Bank Bhd (Kenanga Research) said in its update.

“Now, in another U-turn, MITI has given the green light for all automotive assembly plants covering vehicle and component manufacturing to continue operations, with the activity restored to the essential services list as at January 16, 2021.

“We welcome this decision as a positive development for the automotive industry supported by the extension of Sales and Service Tax (SST)-exempted sales up to June 30, 2021 to clear back-logged orders.”

Previously, the ban was applicable only to states in which the MCO is in effect, specifically Kuala Lumpur, Selangor, Johor, Penang, Melaka, Sabah, Putrajaya and Labuan.

Kenanga Research noted that this originally meant that Perodua Rawang Plant, both Toyota’s Bukit Raja and Shah Alam plants, Proton’s Shah Alam plant and Honda’s Pegoh plant in Melaka were impacted by the move.

“While assembly plants in other states under a recovery or conditional MCO such as the Hicom plant in Pekan, Pahang and the Inokom plant in Kulim, Kedah could remain in operations, interruptions to their operations were likely to happen at some point due to supply issues,” it added.

“This is because their ability to function would be subjected to them being able to secure parts, something that would be difficult if component vendors within the MCO areas were closed.”

Based on recently released data,for 2020 full-year total industry volume (TIV), Kenanga Research saw that Perodua sold 220,154 units, Toyota sold 59,320 units and Proton sold 109,716 units, all higher than their initial target numbers.

Thus, the research arm tweaked its 2020 TIV target higher to 515,000 units from 500,000 units previously, and expect a stronger recovery in 2021 with TIV target of 585,000 units even after factoring in cautious consumer sentiment under MCO 2.0.

“We believe the new volume-driven launches in fourth quarter of current year 2020 (4QCY20), that is, Proton X50, Honda City and Nissan Almera, could help improve sales with back-logged booking overflowing into 2021 and boosted by the extension of SST exemption to June 30, 2021, seasonal promotions and new launches in the second half (2H) of the year,” it continued.

“Overall, 2021 could potentially be a better year supported by new launches, for example Perodua D55L, along with better incentives program under the National Automotive Policy 2020, positive impact from Bank Negara Malaysia’s overnight policy rate cut and pre-emptive measures to assist those whom might be financially challenged by Covid-19 impact.”