AKD Quotidian about — Auto Sector: Dec’13 Industry Volume Update

Karachi, January 13, 2014 (PPI-OT): Pakistan Automotive Manufacturers Association (PAMA) has released auto numbers for the month of Dec’13. According to the data, overall industry volumes grew by 6.5%YoY in IHFYI4 to stand at 61,252 units where on MoM basis a decline of 7.5% was recorded with volumes of 8.868 units in Dec’13.

According to AKD Securities, the decline in December follows a recurring pattern wherein buyers tend to wait out the year end, opting instead for New Year registrations, with January sales having historically risen by an average of 60%MoM over the parts years. On the tractors front, sales volumes increased by 34%MoM in Dec’13 to stand at 5770 units. At the same time, tractor sales in IHFYI4 declined by 33%YoY to stand at 18,376 units.

PSMC: Dec’13 sales remained flat at 5981 units while 1 HFYI4 sales increased by 3.4%YoY to 35492 units. Sales of Bolan and Cultus increased by 30%MoM and 9.7%MoM, respectively while sales of Mehran dropped by 23%MoM. At current levels, AKD Securities has a Neutral stance on PSMC with a target price of PkR173/share.

INDU: Dec’13 sales came in at 1,982 units, down by 9.2%MoM but up by 26%YoY. Cumulative 1 HFY14 sales came in at 15,179 units, up by just 3.3%YoY. On an individual product basis, Corolla sales were recorded at 1,534 units, down by 22%MoM while Hilux sales recorded a sharp increase ct 2.0x MoM to 396 units. Fortune sales remained tepid at just 52 units in Dec’13. At current levels, AKD Securities has a Neutral stance us HUH with a target price of PkR384/share.

HCAR: The Company recorded disappointing sales volumes of just 655 units in Dec’13, down 5Q%MoM/24%YoY. In this regard, City sales dropped by 52%MoM to just 390 units and Civic sales dropped by 46%MoM to just 265 units. However, 1 HFY14 volumes of 9,989 units are up by 20%YoY.

Tractors: Dec’13 closed with a 33.6%MoM increase in tractor sales at 5,770 units (4,205 units of MTL up 68%MoM and 1,565 units of AGTL down by 14%MoM) as buyers looked to complete purchases prior to the GST rise from Jan 1’14. To recall, GST on tractors has risen to 17% from previous 10% from the beginning of CY14.

Review and Outlook: The market continues to wait for the AIDP which will likely dictate future directions for the industry. A potential tariff protection plan for new entrants within the AIDP could result in increased competition within the auto manufacturing industry, potentially putting existing players under pressure. At the same time, local OEMs are expected to introduce new models in the current year with potential small segment models as well as newer versions of Corolla and City (already launched internationally). At current levels, AKD Securities has a `Neutral’ stance on both INDU and PSMC with respective TPs of PKR3S4/share and PkR1 731 share as AKD Securities waits for the announcement of AIDP. That said, share prices for auto manufacturers may rally in the short term on the back of potentially strong sales numbers in Jan’14 where AKD Securities portends a growth of 60%MoM in overall industry sales.