Morning Call about – Fauji Fertilizer Bin Qasim Limited Chemicals – Pak Suzuki Motors Ltd Autos – Arif Habib Limited

Karachi, March 03, 2014 (PPI-OT): CY13 expected to clock in at PKR 21.59/share, +82% YoY!

CY13 earnings to clock in at PKR 21.59/share, up 82% YoY
Pak Suzuki Motor Company’s (PSMC) Board of Directors is set to meet on 5th Mar’14 to approve its CY13 financial results.

According to Arif Habib Limited, they expect the company to post an EPS of PKR 3.02/share in 4QCY13 taking the CY13 EPS to PKR 21.59/share vs. PKR 11.88/share in CY12. Arif Habib Limited also expects the company to announce a full year CY13 DPS of PKR 4 with the result.

This +82% YoY growth is primarily on account of gross margins which are expected to improve by 220bps to 6% in CY13. In 4QCY13 Arif Habib Limited believes gross margins will drop by 224bps QoQ from 7.4% in 3QCY13 on account of JPY to USD appreciation of 7%. In CY13 the company realized a one off gain (PKR 278.5mn – after tax PKR 3.11/share) on disposal of land, building and waste treatment plant of an old motorcycle plant.

Financial Highlights

PKR mn                   4QCY13E     3QCY13A    QoQ    CY13E    CY12A    YoY

Net sales                 11,621      12,069    -4%   50,570   58,531   -14%

Gross profit                 652         890   -27%    3,119    2,346    33%

Gross margins               5.6%         7.4%           6.2%     4.0%

Sales and admin expenses       140         129     8%      510      357    43%

Other income                 124         101    23%      788      494    60%

Finance cost                  17           1     nm       70       11   530%

Profit after tax             249         371   -33%    1,777      978    82%

EPS (PKR)                   3.02         4.51          21.59    11.88

DPS (PKR)                   4.00                        4.00     2.50

Source: Company Accounts and AHL Research

Year end phenomena pushes sales down 2% QoQ
Due to year-end phenomena (new registrations opted at the start of CY14) Car and LCV units witnessed a 2% QoQ drop as main variants Swift and Mehran sales declined by -27% and -9% respectively, however Cultus sales rose by 17%. While in CY13 an increase of 36% YoY of Cultus sales has been witnessed.

AIDP awaited soon
The much awaited Auto Industry Development Policy II (AIDP-2) is expected to be announced shortly by the Gov’t, where a 5 year regulatory framework will be outlined. Arif Habib Limited flags Arif Habib Limited’s positivity on this policy for local assemblers as duties are expected to be reduced. Potential incentives for new auto assemblers of LCVs (trucks/vans/pickups) is unlikely to hurt the demand for exisiting participants who cater to markets of other variants. On the other hand, in case of an increase of age-limit of imported cars (currently 3 years) would be negative for local assemblers

Recommendation
Arif Habib Limited currently has a ‘Hold’ stance on PSMC with a June-14 TP of 169/share (offering an upside 6.7% from last closing), the scrip is currently trading at a CY14E P/E of 9.9 and P/B of 0.74.