AKD Securities Limited – Pakistan Autos – Mar’15 Review

Karachi, April 13, 2015 (PPI-OT): According to the recently released PAMA numbers, total auto sales (cars+LCVs) for Mar’15 have been recorded at 21,147 units (+22%MoM/+72%YoY); with car sales reaching 16,806 units (+20%MoM/+63%YoY). Consequently, 9MFY15 car sales are up by 22%YoY to 105,344 units vs. 86,395 units sold in the same period last year.

Amongst the local assemblers, PSMC (9MFY15 sales up 20%YoY) came out as a clear winner particularly helped by Punjab Rozgar Scheme followed by INDU (9MFY15 sales up 50%YoY). With policy rate at a multi-year low, AKD Securities Limited believes, going forward an increase in auto sales is plausible, particularly as auto financing picks up (growth of 27.3%YoY in Jan’15) in a lower interest rate environment. PSMC and INDU remain AKD Securities Limited’S top picks within the auto space as they provides upside of 26% and 14% respectively.

Mar’15 sales review: Total auto sales (cars+LCVs) in Mar’15 have registered at 21,147 units (+22%MoM/+72%YoY) with car sales clocking in at 16,806 units (+20%MoM/+63%YoY). As a result, 9MFY15 car sales rose by 22%YoY to 105,344 units. At the same time, LCV/Pickup sales have increased up 32%YoY in 9MFY15 to 18,294 units. Tractors continued their robust performance as Mar’15 sales reached 4,769 units (+19%MoM/+59%YoY). Cumulatively, 9MFY15 tractor sales grew by 41%YoY to 33,181 units with sales for AGTL and MTL up by 45%YoY and 35%YoY, respectively.

PSMC: The company sold 12,982 units in Mar’15 (+30%MoM/+117%YoY) to bring 9MFY15 sales to 66,651 units, up by 21%YoY. As expected sales picked up momentum from Jan’15 onwards on commencement of the New Year coupled with the Punjab Rozgar Scheme. PSMC remains AKD Securities Limited’s preferred play within the auto space on relatively un-stretched valuations, room to grow capacity utilization (currently ~60%) and guaranteed offtake under the GoP schemes and popularity in cities. PSMC currently trades at a CY15F P/E of 6.4x where AKD Securities Limited’s target price of PkR498.7/share implies a Buy stance. which shields the company from risks to rural incomes due to the ongoing commodity slump.

INDU: Mar’15 sales of 5,766 units are up 14%MoM/42%YoY led by Corolla, which saw sales of 5,196 units (+17%MoM/53%YoY) following launch of the new model while, after a brilliant last month, Hilux sales came off by 13%MoM/20%YoY to 497units in the month under review. Consequently, 9MFY15 INDU’s sales are higher by 50%YoY to 40,141 units. At current levels, AKD Securities Limited’s target price of PkR1189.4/share implies an Accumulate stance.

HCAR: The company has sold 2,364 units in Mar’15 (+5%MoM/+20%YoY) where Civic sales are up by 11%MoM/8%YoY. Consequently, HCAR’s 9MFY15 sales have registered at 16,405 units (-2%YoY), clearly losing out to INDU’s Corolla.

Investment Perspective: The listed auto space has gained 84.5%FYTD vs. the KSE-100 Index’s returns of 9.1% over the same period. While AKD Securities Limited acknowledges that auto shares have rallied swiftly over the last year, AKD Securities Limited believes premium valuations are justified where the next 2-3yrs can potentially result in a compelling mix of strong margins and higher volumes. Going forward, AKD Securities Limited sees a general volumetric uptick complementing sustained high margins, particularly as auto financing is expected to increase (currently growing at 25%YoY). In this regard AKD Securities Limited flags PSMC as AKD Securities Limited’s preferred play where the scrip provides an upside of 26% against AKD Securities Limited’s TP of PkR498.7/share.