IGI Securities Limited – Day Break

Karachi, March 11, 2019 (PPI-OT): Automobile Assemblers – Tides turned in favour; recent policy changes to provide breather

We revisit our investment case on the sector for the companies under our coverage (INDU, HCAR and PSMC) taking into account the recent amendments made in the policy measure where non-filers are allowed to purchase locally manufactured vehicles irrespective of the engine capacity. In addition, Federal Excise Duty (FED) have been increased to 10% for vehicles having engine capacity of 1700cc and above, bringing chances of further price hike.

We believe the recent policy measure is positive for companies to regain their lost volumes and fuelling their bottom line. As per se, we have revised our volumetric assumption slightly upwards for companies under over coverages, with the impact resulting in accretion to our earnings estimates. Consequently, our valuations are upgraded with INDU, HCAR and PSMC having a target price of PKR (1,662/326/277/share).

We have a “BUY” call on INDU, based on our revised Dec-19 target price of PKR 1,662/share, offering +20% upside from its last closing. The company is currently trading at FY19E P/E of 7.44x and offers a dividend yield of 9.4%.

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