KUALA LUMPUR: The coronavirus outbreak has for now not adversely posed supply risk for key Malaysian automotive players, other than Proton Holdings Bhd and Sime Darby Bhd.
Analysts said any impact from the outbreak was likely to be indirect in nature with the exception of Proton and Sime Darby, which has sales operations in China where the outbreak originated.
In Malaysia, Sime Darby is the distributor of Hyundai vehicles.
Hyundai is halting production at its South Korean plants due to shortage of China-sourced parts.
It was the first major automaker to do so outside of China.
South Korean production accounts for 40 per cent of Hyundai’s global output.
MIDF Research said Hyundai’s lack of manufacturing presence in Southeast Asia suggested local reliance on supplies from South Korea.
“Our chat with other local auto players suggests some exposure to Chine-sourced parts, but depending on complexity, can be substituted.”
The firm added that Sime Darby’s inventory buffers could last it beyond the short-period plant closure in South Korea.
Given Hyundai’s lack of manufacturing presence in this region, kits and complete built-up units (CBUs) for Malaysia are likely to be imported directly from the South Korean plant.
“Hyundai CKD (completely knocked down) operations in Malaysia is small however with only 1,400 units assembled in 2019, against a sales volume of 2,217 units in the same year. At this juncture, the indicative closure of Hyundai’s South Korean plant is only for about a week, while players typically have a buffer of one to two months’ worth of inventories,” MIDF Research said.
Proton, meanwhile, has direct supply and demand exposure to China’s automotive sector.
Proton’s X70 model currently is fully-sourced from major shareholder Geely’s China plants.
The firm said even when locally assembled, there was high likelihood that parts of the CKD kits and components were still sourced from the Chinese supply chain, with localisation rate reportedly only around 30-40 per cent.
“So far Geely has not yet made any strong commitment to pause production,” it said, adding that the X70 was estimated to account for 16 per cent of Proton’s monthly sales.
For Mazda, MIDF Research said its local component suppliers were exposed to sourcing of certain child parts from Chinese suppliers.
However, these parts are well stocked up at the moment and in an extreme scenario, can be easily substituted from other suppliers.
“Our chat with UM Toyota Motor Sdn Bhd, meanwhile, indicated that it sources its kits and components from Asean and Japan mainly and that Toyota Motor Thailand is unlikely to have any exposure to parts sourcing from China.
“Provided the components sourced from China are not extremely complex in nature, we think substitution should not be too much of an issue, though some increase in cost should be expected with temporary alternative sourcing,” it said.
Kenanga Research analyst Wan Mustaqim Wan Ab Aziz feels that the outbreak would not have a long-term impact on the sector.
“The impact is only for the first quarter of the current year 2020 for certain carmakers that dealt with China,” said Wan Mustaqim.
He said the industry sales were on track to meet Kenanga Research’s targeted 2019 total industry volume target of 600,000 units (up 0.2 per cent).
The firm expects a two per cent sales growth this year to 612,000 units, in line with Malaysian Automotive Association’s projection.
“We believe the weak macroeconomic condition, and possible delays in new car launches given the backlog of pricing approvals (three to five months) will be offset by exciting new launches, especially by the non-nationals and better incentives program under National Automotive Policy 2020 (tentatively to be unveiled by March this year),” he said.
Kenanga Research’s sectoral top-pick is Bermaz Auto Bhd’s with target price of RM2.65 for its defensible niche sport utility vehicle market and attractive, steady dividend yield of 7.3 per cent.