This article first appeared in The Edge Financial Daily on August 14, 2019
Auto sector
Maintain neutral: International Trade and Industry Minister Datuk Darell Leiking announced last Friday that DreamEDGE Sdn Bhd (unlisted) had been appointed the Malaysian anchor company to deliver the new national car project (NNCP) with advanced technology support from Daihatsu Motor Company.
DreamEDGE plans to release its first NNCP prototype in March 2020 and launch its first model in March 2021. According to DreamEDGE chief executive officer Kharil Adri Adnan, the first NNCP model would likely be a C-segment sedan vehicle using hybrid technology. Malaysia’s C-segment sedan market is a mid-level category currently dominated by Japanese models, such as Honda Civic and Toyota Altis. Details on the level of partnership with Daihatsu have not been finalised, but it will not involve an equity partnership structure.
Leiking highlighted DreamEDGE was chosen as the anchor company for the NNCP because it has a capable internal development team focused on technology innovation, from conceptualisation to prototyping and mass production. The engineering design company focuses on advanced research and development in automotive, robotics and three-dimensional printing. Founded in 2007, it is one of the products from the government’s Look East programme, with more than 150 engineers currently.
DreamEDGE intends to engage local contract manufacturers to utilise the excess production capacity in the domestic auto industry. Moreover, this will help speed up its product development and manufacturing to meet the March 2021 deadline. Hence, it does not plan to build a new manufacturing plant for the NNCP. Although DreamEDGE did not reveal the potential investment value for the project, it indicated the total investment is expected to be “a few hundred million” ringgit. The group is still finalising its funding structure for the NNCP.
The NNCP could provide competition in the domestic auto industry if it could create attractive products with competitive prices. However, we think the NNCP remains in a preliminary stage as many details have yet to be finalised. We remain “neutral” on the auto sector. Key upside risks to our call are a strengthening ringgit against the greenback and Japanese yen, a reduction in interest rate and favourable new policies. Key downside risks are a depreciation of the ringgit versus US dollar and Japanese yen, interest rate hikes and the lack of new launches. — CGS-CIMB Research, Aug 13