- Setting the ball rolling: Mazda Corp and Bermaz Motors – a
subsidiary of Berjaya Corporation – have agreed to begin talks on the
establishment this year of a joint venture for a production and sales company
in Malaysia. It is said that the new JV project plans to begin local assembly
of the Mazda CX5 (an SUV model) in early 2013 at a rate of 3,000 units a year.
Bermaz Auto has been the official distributor of Mazda cars in Malaysia since
2008. More importantly, Mazda considers Malaysia as one of its key markets in
ASEAN, alongside Thailand and Indonesia. Mazda’s Structural Reform Plan has set
a sales target of 150,000 units for the entire ASEAN region by March 2016
(Mazda’s YE March).
- Inokom currently assembles the Mazda 3: Currently, only
the Mazda 3 model (selective 1.6 and 2.0 litre variants) is locally assembled
(since early 2011). Assembly is undertaken at Inokom’s plant in Gurun, which is
majority controlled by Sime Darby (51% stake), with co-owners Pesumal (14%),
BCorp (15%), Hyundai Motor Company (15%) and Hyumal (5%). The Inokom plant mainly
assembles BMW, Hyundai-Inokom and Jinbei Haise models besides the Mazda 3.
- Malaysia as a regional passenger car hub?: Besides using
Inokom’s plant in Malaysia, Mazda operates an assembly plant (a shared capacity
of 300K units/annum) in Thailand, via a 45% stake in Auto Alliance with the key
partner being Ford (48% stake). The plant, however, manufactures mainly the
Mazda Fighter and Ford Ranger (4WD) for the local and export markets. We believe
Mazda could be looking at using Malaysia as a key passenger car production hub
for the region, given Malaysia’s large passenger car base, which can absorb
initial volumes and essentially “subsidise” pricing for exports to lower income
regional markets.
- We understand that Mazda has an existing manufacturing
licence – a comprehensive one that enables it to assemble vehicles of all
engine capacity and pricing. However, Mazda does not have a plant in Malaysia
and could be looking for a local partner/investor. Attaining sufficient scale
is a key risk should Mazda decide to venture out on its own, on top of having
to deal with local regulators and lack of knowledge of the local market. We
also note that the Mazda 3, which is currently being assembled by Inokom, is
typically bound by a strict contract over the vehicle’s lifecycle.
- MBM (BUY FV: RM4.70/share) in the spotlight?: We believe
MBM’s comprehensive manufacturing licence, maiden expansion into vehicle
assembly and its plans to allow a partner to control its manufacturing
operations may raise the possibility of the Mazda-Bermaz JV getting in serious
talks with MBM. Notably, BCorp does not have a comprehensive licence on its own
to manufacture <1.8litre passenger cars. While Mazda is currently using
Inokom’s plant for its Mazda 3 CKD, BCorp only has a 15% stake in the plant and
Mazda has no stake at all. Furthermore, Inokom’s 40,000 cars/annum plant is
currently running at close to 80% utilisation rate. To minimise risks of the
Mazda-Bermaz JV, we would not rule out the JV taking up a substantial stake in
a Mazda specific manufacturing operations
under MBM’s vehicle assembly operations (See Chart 2), whereby production can be scaled out over
MBM’s multiple assembly JV partners (still in the works).
- The auto parts sector is a cheap proxy into the
“ASEANisation” of Malaysia’s passenger car manufacturing industry (APM – BUY,
FV: RM6.50/share: trading at 6.7x FY12F earnings). MBM (8.8x FY12F earnings) is
also an attractive play into this theme given its stake in Hirotako (a key
local supplier of airbags and seatbelts) and comprehensive manufacturing
license which positions it as an attractive local partner for foreign OEMs.
Furthermore, MBM is deeply undervalued trading at 30% discount against auto
manufacturing incumbents such as Tan Chong (13x), UMW (13x) and DRB (13x).
Source: AmeSecurities
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