The Malaysian GE14 (Part 6) – Stocks Impacted by Reduction of Excise Duties on Imported Vehicles

equities ge14 malaysia stocks Aug 20, 2018

by: Tam Ging Wien

Edited by Dean Goh for ProButterfly.


All examples and stocks quoted here in this article and on the ProButterflyTM site are for learning purposes; it does NOT constitute financial advice or a Buy/Sell recommendation. Contents are reflective of personal views and readers are responsible for their own investments and are advised to perform their own independent due diligence and take into account their own financial situation. If in any doubt about the investment action you should take, you should consult a professional certified financial advisor.

The "Malaysian General Elections (GE14) – An Investors Perspective" series is intended to discuss and generate investment themes and ideas, but it should NOT be misconstrued or otherwise interpreted as financial advice.


In our previous articles in this series, we covered a summary of the major points of the new Pakatan Harapan government manifesto.

In summary, the Pakatan Harapan (PH) has campaigned with a very clear message of hope for the people of Malaysia in their manifesto entitled Rebuilding Our Nation Fulfilling Our Hopes. The manifesto sets out the following pledge:

  • Fulfil 10 promises within 100 days
  • Fulfil 60 promises across 5 major pillars within 5 years
  • Fulfil 5 special commitments to specific groups including the FELDA Settlers, The Indian Community, Women, Youths and Senior Citizens

The manifesto sets out the following promises that the new government intends to fulfil within the first 100 days of taking office:

  1. Abolish the GST and take steps to reduce cost of living.
  2. Stabilise the price of petrol and introduce targeted petrol subsidies.
  3. Abolish unnecessary debts that have been imposed on FELDA settlers.
  4. Introduce EPF contribution for housewives
  5. Equalise the minimum wage nationally and start the processes to increase the minimum wage.
  6. Postpone the repayment of PTPTN to all graduates whose salaries are below RM4,000 per month and abolish the blacklisting policy.
  7. Set up Royal Commissions of Inquiry on 1MDB, FELDA, MARA and Tabung Haji, and to reform the governance of these bodies.
  8. Set up a Special Cabinet Committee to properly enforce the Malaysia Agreement 1963.
  9. Introduce Skim Peduli Sihat with RM500 worth of funding for the B40 group for basic treatments in registered private clinics.
  10. Initiate a comprehensive review of all megaprojects that have been awarded to foreign countries.

In addition to the 10 promises within 100 days, there are also 5 major pillars of reforms that the PH government promises to achieve within the next 5 years:

  • Pillar 1: Reduce the People’s Burden
  • Pillar 2: Institutional and Political Reform
  • Pillar 3: Spur Sustainable and Equitable Economic Growth
  • Pillar 4: Return Sabah and Sarawak to the Status Accorded By the Malaysian Agreement 1963
  • Pillar 5: Create A Malaysia That is Inclusive, Moderate and Respected Globally

Taking the 10 promises and 5 key pillars at face value and assume that the new PH government will see through its promises and implement them in the most efficient and practical way.

We we 6 major (non-exhaustive) groups of stocks which will be impacted as a result of the implementation of the PH Manifesto:

  1. Leadership Change – Potential Impact on Businesses with Government Monopolies, Ownerships, Relationships and Favours
  2. Megaprojects Review – Potential Implications on Development and Construction related Stocks
  3. GST Removal – Potential Implications for Consumer Stocks
  4. Abolish Highway Tolls – Potential Implications on Toll Operators
  5. Reduction of Excise Duties on Imported Vehicles – Potential Implications on Vehicle Importers and Retailers
  6. Impact on the Ringgit – Potential Implications on Import and Export Driven Businesses

This week, we will cover stocks in Group 5 which could potentially be impact by the Reduction of Excise Duties on Imported Vehicles.

Reduction of Excise Duties on Imported Vehicles – Potential Implications on Vehicle Importers and Retailers

 In an effort to reduce the burden on the citizens, the PH government has proposed to reduce the excise duties of foreign imported cars below 1600cc for households with incomes below RM8,000 per month. This proposed scheme is only applicable to the first car purchased by the household.

Together with the targeted petrol subsidies for motorcycle below 125cc and cars below 1300cc, the policies are likely to impact the lower to middle income households and encourage purchases of smaller engine capacity vehicles. This could increase competition with local car brands such as Proton and Perodua and directly affect importers and assembly services companies in the affordable car segment.

The automotive sector is also seen to be fairly complex in its value chain. The wild-card in this sector would be the impact of the change from GST to SST. With the current zero-rated GST and without the SST, prices are likely to come down across the board in the short term. As the date for the reinstatement of the SST is unknown, it would be interesting to see how it would play out for the automotive industry.

PROTON Holdings Bhd (PROTON) is short for Perusahaan Otomobil Nasional (or in English the National Automobile Company) and was as conceived back in 1979 by the current Prime Minister of Malaysia Dr Mahathir. Proton used to be listed on the Bursa Malaysia stock exchanged but has since been taken private by its majority shareholder DRB-Hicom Bhd (DRBHCOM). In Jun 2017, DRB-Hicom divested a 49.9% stake in Proton to Hong Kong listed Geely Automobile Holdings Ltd (HK:0175). Post-sale, DRB-Hicom still owns a controlling stake of 50.1% in Proton. The sale of Proton has been widely criticised by Dr Mahathir during his GE14 opposition campaign.

DRB-Hicom is a large industrial player in the Malaysian automobile industry with sizable stakes in motorcycle manufacturer Motosikal Dan Enjin Nasional Sdn Bhd (MODENAS), Honda Malaysia, Isuzu Malaysia, Mitsubishi Motors Malaysia and the Euromobil and HICOM Auto which imports, assembles and distributes Audi and Volkswagen make of vehicles. It also has a diverse line of business including Pos Malaysia Bhd (POS), environmental services, defence systems, property development and hotel management.

Slightly more than a decade after Proton, a second local automobile company was founded as Perusahaan Otomobil Kedua Sdn Bhd (or the Second Automobile Manufacturer Private Limited) or usually abbreviated to Perodua. Perodua is currently the largest local car manufacturer and distributor in Malaysia with Proton following closely behind.

Perodua itself is a private entity controlled by three major listed shareholders including UMW Holdings Bhd (UMW) (38%), Daihatsu Motor Co. Ltd and Daihatsu (Malaysia) (25%) and MBM Resources Bhd (MBMR) (20%). Daihatsu is controlled by Japan listed Toyota Motor Corp (TYO:7203).

UMW Holdings is one of Malaysia’s largest industrial corporation with lines of business in Automotive, Equipment distribution and manufacturing. Through a joint venture with Toyota, UMW’s subsidiary UMW-Toyota Motor Sdn Bhd is the appointed Toyota distributor, assembler and exporter of Toyota and Lexus vehicles in Malaysia.

Tan Chong Motor Holdings Bhd (TCHONG) is another listed automotive company on the Bursa Malaysia stock exchange whose line of business encompasses automobile assembly, manufacturing, distribution and sales. It is best known as the franchise holder to assemble and distribute Nissan, Renault and Subaru vehicles in Malaysia.

Sime Darby Bhd (SIME) is a Malaysian conglomerate with lines of business in the plantations, property, industrial, motors and logistics sectors. Through its motor’s division, it co-owns Inokom Corp, a joint-venture with Hyundai Motor Co (KRX:005380) which assembles and sells Hyundai vehicles in Malaysia. With its ownership of Auto Bavaria in Malaysia, partnership with Ford and dealership agreements with Porsche, it sells the BMW, MINI, Ford, Land Rover, Porsche and Alfa Romeo brands in Malaysia and around the region.

Oriental Holdings Bhd (ORIENT) is a diversified Malaysian conglomerate that engages in automotive dealerships, automotive components, financial services, healthcare, property development, retailing and plantations. Most notably, Oriental is the distributor of Honda vehicles in Malaysia and Singapore.

 

 

 

We will be watching the political developments in Malaysia very closely over the coming weeks.

In our previous articles on the Malaysian GE14, we discussed the results of the election and the immediate impact on the markets as well as the potential stocks directly impacted by the leadership changereview of the megaprojectsremoval of GST and the abolishment of highway tolls. Do catch this article if you haven't done so!

Be sure to follow us to learn more about the profile of Malaysian listed stocks!

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