BMI View : We see the recent MoU between TMS and Scania to assemble the latter's buses in Malaysia as positive for TMS due to the deficit in local CV production versus market demand, as well as the country's tourism opportunities in the coming years.
Terus Maju Services Sdn Bhd (TMS) recently signed a Memorandum of Understanding (MoU) with Swedish commercial vehicle (CV) manufacturer Scania to assemble the latter's buses in Malaysia. This agreement will help TMS enter the bus manufacturing business from currently being just a transportation and maintenance services provider. At the signing ceremony, TMS unveiled the P-13, its first locally assembled Scania bus.
According to TMS' managing director Loo Kok Seong, this new direction makes strategic sense for the firm given that it is currently in the business of providing repairs for coach bodies and other servicing activities. Furthermore, the firm has been working with Scania for some time and enjoys strong support from the CV manufacturer.
The MoU, which will last until the end of 2014, will involve TMS assembling up to 25 units of Scania's bus chassis, each valued at MYR560,000 (US$176,300). The firm will also go on to furnish the buses with its internal fittings. In that regard, we see synergies for TMS given that the company already has expertise in this area.
Moreover, we remain bullish on the overall CV market. We expect CV sales to grow 4.7% over the 2013-2017 period, to hit 95,000 by 2017. Furthermore, production of CVs has been lagging CV sales since 2007, resulting in Malaysia having to rely significantly on imports to satisfy demand. Given that firms would prefer sourcing for locally manufactured CVs when possible, this is another positive for TMS.
Although there was no mention of whether the MoU between the two companies could be extended beyond 2014, we believe there are ample growth opportunities in Malaysia's various industries for TMS to expand its bus assembly operations. A case in point is the country's tourism sector, which has seen tourist arrivals growing at a compound annual growth rate of 6.1% over the 2006-2012 period. Arrivals in H113 are already up 7.9% year-on-year (y-o-y) to 12.55mn units. In our opinion, Malaysia remains an attractive tourist destination in the region, not least due to its political stability and cultural heritage.
|Tourism Will Continue To Grow In Malaysia|
|Malaysia - Tourist Arrivals, Mns|
Furthermore, our Tourism team expects the strong growth in inbound tourist arrival to continue with the n umber of travellers to Malaysia to reach over 32.2mn per year by 2017. This increase in tourist arrivals, in our opinion, would see demand for buses remaining robust.
Lastly, we have highlighted for a while that Malaysia is beginning to attract more local manufacturing investment in its autos sector. While the country may not have the same scale of production as Indonesia and Thailand, its strengths in higher value-added production does make it a good alternative for automakers to consider. Indeed, the investment by TMS to assembly Scania vehicles locally, plays out our view.