JS Securities Limited – Morning Briefing

Karachi, December 06, 2017 (PPI-OT): Autos: Nov-2017 sales likely to grow by 18% YoY

We preview auto sales for Nov-2017, where we expect volumes (Passenger Cars + LCVs) to grow by 18% YoY.

We expect Honda Atlas Cars (HCAR) to outperform sector growth, with 42% YoY rise in unit sales during the month owing to BR-V sales and stronger demand for its sedan segment.

We estimate Pak Suzuki Motor Company (PSMC) to record 22% YoY growth in volumes on the back of strong demand for Wagon-R, Mehran and Cultus variants.

Indus Motor Company (INDU) is likely to witness a marginal 1% YoY decline in overall volumes, however, proportion of higher-margin models is anticipated to be higher, which is value accretive for the company.

We retain INDU as our top pick in JS Auto Universe, with a Target Price of Rs2,201, upside of 26% from current price levels.

Auto sales likely to grow by 18% YoY in Nov-17

We preview auto sales for the month of Nov-17, where we expect auto volumes to post 18% YoY growth. We anticipate HCAR to outperform sector growth, with 42% YoY improvement, owing to stronger demand for its sedan segment, coupled by contribution to the company’s volumes via BR-V. Pak Suzuki Motor Company (PSMC) is likely to exhibit yet another robust showing, with volumes expected to grow by 22% YoY on the back of strong demand for its Wagon-R, Mehran and Cultus variants. Indus Motor Company (INDU) sales are likely to inch down slightly by 1% YoY; however, the key factor to note is the product mix for the company, which YoY has a higher proportion of greater margin variants, i.e. Fortuner and Hilux. Sequentially, auto sales are expected to decline by 10% MoM, owing to record high sales in Oct-17 and year-end seasonality factor. Among other segments, we forecast tractor sales to grow by 8% YoY during the month, keeping its recent growth momentum intact.

INDU our top pick in Pak Autos

We maintain INDU as our top pick in JS Auto Universe, with a Jun-2018 Target Price of Rs2,201, presenting an upside of 26% from current price levels. The stock currently trades at FY18E P/E of 9.5x, while offering attractive D/Y of 7%. Key risks to our investment case include (1) higher-than-expected Pak Rupee depreciation against US$ and (2) higher-than-expected increase in steel prices.

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