Morning Call about – Sales up 5% MoM in Aug’13: Quarterly earnings growth to be mixed – Arif Habib Limited

Karachi, September 12, 2013 (PPI-OT): As per the latest auto sales and production figures for Aug-13, released by the

Pakistan Automotive Manufacturers Association (PAMA), car and LCV sales were slightly up 5% MoM during Aug’13.

According to Arif Habib Limited cumulatively, auto sales increased 4% YoY in 2MFY14. Segment-wise breakup shows 1000-1300cc segment was down 17% MoM and 3% YoY in 2MFY14. The economy segment (below 1000cc) also decreased 2% MoM and 7% YoY in 2MFY14. On the other hand, high-end segment (1300cc+) posted growth of 10% MoM and 5% YoY in 2MFY14.

Auto data            Aug-13     Jul-13      MoM      Aug-12    YoY    2MFY14  2MFY13    YoY
1300cc and above      5,229      4,775     10%       4,669     12%    10,004   9,492    5%
1000cc                1,018      1,225    -17%       1,173    -13%     2,243   2,308   -3%
<1000cc               2,260      2,299     -2%       2,625    -14%     4,559   4,901   -7%
Total cars            8,507      8,299      3%       8,467    0.5%    16,806  16,701    1%
LCV's+ 4x4            2,589      2,280     14%       1,918     35%     4,869   4,119   18%
Total                11,096     10,579      5%      10,385      7%    21,675  20,820    4%

Company wise          Aug-13    Jul-13     MoM       Aug-12    YoY   2MFY14    2MFY13    YoY
PSMC                   5,982     5,697     5%         6,002  -0.3%   11,679    11,617    1%
INDU                   2,923     2,894     1%         3,092    -5%    5,817     6,179   -6%
HCAR                   2,127     1,962     8%         1,241    71%    4,089     2,891   41%

Source: PAMA

Company-wise sales analysis
Pakistan Suzuki Motor Company’s (PSMC) sales were recorded at 5,982 units in Aug’13, up 5% MoM. Cumulative sales in 2MFY14 were flat on YoY basis (+1%). Honda Atlas Cars Limited’s (HCAR) sales also showed upward trend with 8% MoM growth in Aug’13. On 2MFY14 basis, company’s sales surged 41% YoY mainly owing to low base-effect of last year (when Civic’s old model’s sales were down as the customer waited for its new model that was launched the following month). Indus Motor Company Limited’s (INDU) sales remained stagnant with 1% MoM increase in Aug’13, to 2,923 units. However, on cumulative basis in 2MFY14, company’s sales declined 6% YoY.

Tractors’ sales up 54% MoM!
Tractors’ sales during Aug’13 recorded a massive 54% MoM growth mainly on account of; i) cotton season sowing and ii) low base-effect of last month. In this regard, Millat Tractor sales recorded a massive 96% MoM jump in Aug’13 to 1,422 units, while Al-Ghazi Tractors’ sales were down 11% MoM to 516 units in Aug’13.

Recommendation
Arif Habib Limited initials estimates suggest INDU’s EPS to be in the range of PKR 9-9.5 for JulSep’13, up 2% YoY. As far as PSMC is concerned, Arif Habib Limited expects company’s 3Q EPS to clock in at PKR 2.5-2.75, up 16% YoY. On currency depreciation, assemblers’ margins are expected to stay intact despite JPY’s appreciation against PKR (4.3% Jul’13TD) as product prices have already been raised. With respect to the stock valuation, INDU is trading at a FY14E PE of 7.5x while offering DY of 7%. As for PSMC, the stock is trading at a CY13F PE of 8.1x with a DY of 4%. Arif Habib Limited Dec-13 target prices for INDU and PSMC stand at PKR 328/share and PKR 128/share. Arif Habib Limited thus maintain a ‘Hold’ recommendation on both of the Auto Assemblers.