‘NO DISRUPTION YET TO MOST AUTO PLAYERS’
Sime Darby, Proton may be affected due to supply and demand exposure, say analysts
MOST of the key automotive players are not at risk of supply disruption arising from the coronavirus outbreak in China at the moment.
Analysts said any impact from the outbreak was likely to be indirect, with the exception of Proton Holdings Bhd and Sime Darby Bhd, which have sales operations in China.
Sime Darby is the distributor of Hyundai vehicles in Malaysia. The South Korean carmaker is halting production at its plant due to a shortage of Chinasourced parts.
The research firm said Sime Darby’s inventory buffers could last beyond the short-term plant closure in South Korea.
Given Hyundai’s lack of manufacturing presence in the region, kits and complete built-up units for the Malaysian market are likely to be imported directly from South Korea.
“Hyundai CKD (completely knocked down) operations in Malaysia are small, with only 1,400 units assembled last year, against a sales volume of 2,217 units 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,” said MIDF Research.
Proton, meanwhile, has direct supply and demand exposure to China’s automotive sector.
Proton’s X70 parts are currently mostly sourced from major shareholder Zhejiang Geely Holding Group’s plants in China.
MIDF Research said even when locally-assembled, there was high likelihood that parts for the CKD kits and components were still sourced from China, with localisation rate reportedly at around 30 to 40 per cent.
“Geely has not made any announcement to pause production,” it said, adding that the X70 accounted for about 16 per cent of Proton’s monthly sales.
“Meanwhile, our chats with other auto players reveal some exposure to China-sourced parts but some of those can be substituted.”
For Mazda, MIDF Research said its suppliers sourced some parts from China.
However, those parts were well stocked at the moment and, in an extreme scenario, could be easily substituted, it said.
“UM Toyota Motor Sdn Bhd indicated that it was sourcing kits and components mainly from Asean and Japan suppliers, with Toyota Motor Thailand unlikely to have any exposure to parts sourced from China.
“Provided that the components sourced from China are not complex in nature, substitution should not be an issue, though some increase in cost may be expected,” it said.
Kenanga Research analyst Wan Mustaqim Wan Ab Aziz feels the outbreak will not have a longterm impact on the local automotive sector.
The firm expects a two per cent sales growth this year to 612,000 units, in line with Malaysian Automotive Association’s projection.
Kenanga Research’s sectoral top-pick is Bermaz Auto Bhd, with target price of RM2.65 for its defensible niche sport utility vehicle market and attractive, steady dividend yield of 7.3 per cent.