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Karachi, March 16, 2015 (PPI-OT): PSMC: Rozgar scheme to keep the stock in limelight despite lofty valuations
Result announcement
Pak Suzuki Motors Company (PSMC) is scheduled to announce its full year CY14 financial results on 18th March, 2015. Elixir Securities Limited expects the company to post EPS of PKR24.11, up 7% YoY. 4QCY14 earnings are estimated at PKR4.54/sh, up 16% YoY but down 35% QoQ. However, excluding one off gains booked in 2QCY13 on sale of land, CY14 earnings are expected to grow by 26% YoY basis. Elixir Securities Limited also expects the company to announce final cash dividend of PKR5.0/sh along with the results.
Margins to turn weak on strengthening USD and JPY in 3Q
Even though gross margins are estimated to rise by 0.54pp on a YoY basis, Elixir Securities Limited expects significant decline of 2.3pp on QoQ basis. With estimated one quarter lagged impact from forex movement, both USD (+4.3%) and JPY (+2.5%) strengthened during 3Q which will likely weigh down margins in 4Q. Top line of the company is expected to rise by 4% during the quarter on the back of 7% increase in volumes with incremental growth of 5% coming from Wagon R addition during the year.
Robust year of margins and volumes ahead…
Volumes are expected to spike up significantly during CY15 largely due Apna Rozgar scheme which has now been properly initiated last month with PSMC dispatching 2,580 units to Bank of Punjab. While margins are also expected to remain robust going forward owing to favorable exchange outlook with recent JPY depreciation to augment margins in 1HCY15.
But valuations have run ahead of fundamentals
Elixir Securities Limited, however believe that current market valuations of the scrip have run ahead of fundamentals with the market fully pricing in the positives but not incorporating any potential downsides from possible 1) age limit relaxation for imported vehicles 2) price cuts to hold back margin accretion 3) and regulatory risks emanating from ADPII.
Elixir Securities Limited thus maintains Elixir Securities Limited’s underweight stance on the scrip with Dec-15 PT of PKR377/sh, offering a potential downside of 14% to last closing.