Karachi, June 13, 2018 (PPI-OT): Auto Sector: May’18 sales exhibiting signs of weakness
Monthly PAMA data reads total industry sales at 22,719units for May’18 (+5.05%YoY), showing signs of weaknesses on the back of Holy Month, with reduced working hours and production-side constraints (May’18 production down 5.5%/6.0/18.6% for INDU/HCAR/PSMC), closing 11MFY18 total industry sales at 249,308 units (+21.3%YoY). While Passenger Car sales clocked in at 18,223 units (-15.4%MoM/+4.3%YoY), PSMC lost major ground (-21.2%MoM) displaying signs of weakness across with Cultus sales slumping (-32.3%MoM/29.8%YoY) on the back of fulfillment of corporate orders for the OEM, and channel checks suggesting an ongoing assembly line upgradation. That said, passenger car sales were down -15.4%MoM, 1000CC/800CC and below segment plummeted, falling 19.9%/23.9%MoM. With 11MFY18 cumulative total industry sales nearing ~250K units mark (soaring past FY17 cumulative sales of 221,747), FY18 is expected to cross the finish line with heft. As INDU’s expansion activity close to fruition (Jun’18 expected on-boarding); lifting capacity to 75K units, and possible stratification of Corolla (adding fuel to fire-up additional capacity – expectations detailed in previous notes), INDU remains our top pick with a DCF based TP of PkR2,192/sh., calling for 50% upside from the current price levels.
PSMC: The OEM’s sales sizably dipped with major block of corporate orders fulfilled leading May’18 sales to clock-in at 11,651 units (-21.2%MoM yet +4.7%YoY), taking 11MFY18 sales to 133,726 units (+27.3%YoY). The outgoing month remained a weak spot for across-the-board offerings, segment sales weakened -32.3%/-24.4%/-23.5%/-17.5%/-16.9%/-11.5%MoM for Cultus/Bolan/Mehran/Swift/Ravi/Wagon-R. In this regard, our channel checks indicate assembly line upgradation as a dampener to production for the outgoing month. With 11MFY18 sales still standing strong, the major propellants for the 11MFY18 sales have been Wagon-R/Cultus/Mehran/Ravi with +65.7%/25.5%/22%/21.7%YoY, while Swift/Bolan also remained strong for the period with growth of 17.9%/12.2%YoY.
INDU: The OEM posted sales of 5,910 units for the month (-4.4%MoM/+19.9%YoY) with Corolla/Fortuner remaining lackluster at 4,676/508 units (-5.5%MoM/-2.9%MoM and 10.8%YoY/349.6%YoY). However, demand for Hilux remained strong on the back of preparations for the General Election’18 where OEM sold 726 units (+1.7%MoM/21.8%YoY). In spite of the prohibition of booking of vehicles by non-filers, our dealer-checks indicate order-books for INDU remains sturdy with Corolla booked to Nov’18 on average with major dealers (extending up to Feb’19).
HCAR: OEM posted sales of 4,252 units for the month, with Civic and City sales clocking in at 3,750 units (-7.3%/-0.9%MoM) mainly due to capacity-led production constraints. Cumulative 11MFY18 sales clocked in at 47,868 units (+31.9%YoY), running on a capacity utilization level of ~104.4% for the period.
Investment Perspective: Despite Finance Act’19 bill disallowing purchase of cars by non-filers, the healthy order-book for INDU’s Corolla (average booked to Nov’18, extending up to Feb’19) indicate relative immunity for demand in the premium passenger car segment. As INDU’s expansion activity is close to fruition (Jun’18 expected on-boarding); lifting capacity to 75K units, and possible stratification of Corolla (adding fuel to fire-up additional capacity – expectations detailed in previous notes), INDU remains our top pick with a DCF based TP of PkR2,192/sh., calling for 50% upside from the current price levels.