AKD Securities Limited Equity Research – Daily Report

Karachi, November 13, 2018 (PPI-OT): Pakistan Auto: Oct’18 sales are a much-needed lift

Total automotive industry sales grew +28%MoM/+6%YoY during Oct’18, amounting to 25,508 units, taking cumulative 10MCY18 sales to 225,742 units (+9%YoY), where constituents of total industry sales moved +10%/-11%/-10%/+0%/+9%MoM for Passenger Cars/LCVs/Trucks/Buses/Tractors, where passenger car sales neared a high-watermark of 21,342 units (21,540 units were sold in May’18) owing to a significant strength witnessed in the 800-1000CC segment (+40%MoM).

Cumulative 10MCY18 sales-growth of 9%YoY was an offshoot of Passenger Car/LCVs/Trucks growing 9%/8%/3%YoY, standing in contrast to 4MFY19 sales of +4%/-23%/-1%YoY, confirming our sanguine outlook for passenger car sales, despite dampeners emerging for total industry demand outlook (non-filer ban, rising cost pressures, inflation and oil price spike).

Additionally, for the outgoing month PSMC/INDU/HCAR exceeded nameplate monthly capacities operating at 107/154/120% of monthly double-shift capacity taking 10MCY17 utilization levels to 94%/131%/108% vs. 86/124/95% for SPLY.

Notification of limited cost pass-on of some OEM variants indicate their capacity to absorb cost escalations (PkR slipped 6.6% during Oct’18), in a bid to encourage off-season buyers. Despite softer margin outlook over the near term, INDU remains our top pick in the space, offering a strong value proposition (FY19 D/Y and P/B of 8.9% and 2.5x), and an unmatched brand premium difficult to replicate for new entrants.

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