Analysts cautious on auto sector

13 Aug 2019 / 20:34 H.

PETALING JAYA: Analysts are cautious on the automotive sector following the appointment of DreamEdge as the Malaysian anchor company for the New National Car Project (NNCP) which was announced last Friday.

“Near term, uncertainties in relation to the impact to industry landscape and government incentives to support the project, will create an overhang, leading to potentially higher risk premium being priced into existing sector plays,” said MIDF Research in its report today.

The research house downgraded the sector to a “neutral” from “overweight” previously, given its recent downgrades of Tan Chong Motor Holdings and UMW Holdings, coupled with a weakening ringgit and a flattish total industry volume (TIV).

It noted that the NNCP is expected to require “a few hundred million” in investment with a private investor already secured for the project.

Following the appointment by the International Trade and Industry Ministry (Miti), Daihatsu Motor Company (DMC) has been named as the advanced technology assistance provider for the project.

“However, the technology collaboration with DMC will not involve DMC taking up any equity stake in DreamEdge,” it said.

“Rather, it may include technology exchange of the platform to be used as well as powertrain development,” it added.

For NNCP, DreamEdge will focus on upper body design, human machine interface, interiors, noise vibration and harshness, and ride and handling.

According to MIDF Research, the arrangement is similar to Perodua’s, whereby the company designs the upper body and interiors while the more capital expenditure-intensive platform and powertrains are sourced from DMC.

It said that the government will consider giving tax incentives to participants of the project if they qualify. The finer details of the collaboration are expected to be announced next month.

Meanwhile, CGS-CIMB opined that the NNCP could provide competition to the domestic auto industry if it could create attractive products with competitive prices.

“However, we think the NNCP remains on a preliminary stage as many details have yet to be finalised,” said the research house.

It maintained its “neutral” call on the sector, with the ringgit’s strengthening against the yen and US dollar, interest rate reduction and favourable new policies as key upside risks.

At the moment, DreamEdge has plans to release its first prototype for the NNCP in March next year and it expects to launch its first model in 2021.

According to its CEO Kharil Adri Adnan, the NNCP’s first model will likely be a C-segment sedan vehicle using hybrid technology.

CGS-CIMB said that the car company intends to engage local contract manufacturers to utilise the excess production capacity in the domestic automotive industry.

“This will help to speed up its product development and manufacturing process in order to meet the March 2021 dateline. Hence, it does not plan to build a new manufacturing plant for NNCP,” it said.

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