This article first appeared in The Edge Financial Daily on October 9, 2018

Auto sector
Maintain neutral: The Edge Financial Daily reported last Friday that Entrepreneur Development Minister Mohd Redzuan Yusof indicated the new national car project (NNCP) targets to introduce a prototype model in 2019, followed by the first model roll-out in 2020. The first model under the NNCP — with modern features such as semi-autonomous driving and an advanced safety system — targets the younger generation.

The minister also highlighted the government is currently identifying potential investors and co-developers for the NNCP and expects to finalise the process by end-2018. The government expects the NNCP to attract new players to the country’s automotive scene. It had also identified SilTerra and Composites Technology Research Malaysia (CTRM) as potential partners for the NNCP.

SilTerra is a Malaysia-based wafer manufacturer that supplies integrated circuit chips for the consumer electronics, communications and personal computer industries. CTRM, a subsidiary of DRB-Hicom, manufactures and tests composite components for the aero and non-aero structure segments.

Additionally, the government plans to utilise the country’s existing auto manufacturing infrastructure and employ “disruptive technology” to meet its target of rolling out the first NNCP model by 2020. The government reiterated the NNCP will be fully funded by the private sector, and supported by several government ministries.

We note the Malaysian Industry-Government Group for High Technology, a think tank under the Prime Minister’s Department’s purview, had been appointed to coordinate the NNCP’s execution between various government agencies and the auto industry.

In addition, the international trade and industry ministry is inviting interested parties to submit proposals to participate in the NNCP. Overall, the government expects the NNCP to result in the development of more than 500 new automotive suppliers and vendors, 100 new entrepreneurs, and more than 175,000 jobs over 10 years.

Although the Malaysian auto parts suppliers and existing car assemblers could benefit from a higher plant utilisation, we think it is too early to estimate the potential upside to auto sector earnings from the NNCP for now. We are neutral on the NNCP development and maintain a “neutral” rating on the Malaysian auto sector. — CGSCIMB Research, Oct 6