JS Securities Limited – Morning Briefing

Karachi, February 13, 2018 (PPI-OT): Autos: Jan-2018 sets new records, sales up 13% YoY

As per PAMA data, auto sales (total Cars and LCVs) in Jan-2018 clocked-in at a record high of 23,562 units, up 13% YoY.

Pak Suzuki Motor Company (PSMC) set its own new benchmark, with 13,793 units sold (up 24% YoY) during the month.

Honda Atlas Cars (HCAR) posted 10% YoY growth in the month where BR-V’s inclusion helped the company to exhibit volumetric increase.

Indus Motor Company (INDU) witnessed a 7% YoY decline in overall sales, where Corolla sales fell 17% YoY, however, highest ever Fortuner (up 269% YoY) sales and growth in Hilux (up 24% YoY) cushioned the impact.

In other segments, Ghandhara Industries Limited (GHNI, up 32% YoY) and Atlas Honda Limited (ATLH, up 16% YoY) set new peaks in unit sales, while Al-Ghazi Tractors Limited (AGTL, up 53% YoY) also outperformed.

We reiterate INDU as our top pick in JS Auto Universe, with a Dec-2018 Target Price of Rs2,254, offering an upside of 32%. The stock is trading at a P/E of 9.3x, and offering a D/Y of 8%.

Auto sales up 13% YoY in Jan-2018, a record high

Auto sales (Cars and Light Commercial Vehicles), as reported by PAMA, clocked in at a record high of 23,562 units during the month of Jan-2018, representing a growth of 13% YoY over 20,844 units sold in Jan-2017.

Pak Suzuki Motor Company (PSMC) continued to benefit from the Uber/Careem factor during the month. The company reported highest-ever volumes, up 24% YoY, led by buoyant sales for Wagon-R (up 69% YoY), Cultus (up 50% YoY) and Mehran (up 16% YoY). Honda Atlas Cars (HCAR) performed below par compared to the industry average, with growth of 10% YoY during the month, where the presence of BR-V in its lineup during Jan-2018 helped the company in recording growth in unit sales, countering the minor slowdown in combined Civic and City sales (down 3% YoY). Indus Motor Company (INDU) witnessed a 7% YoY decline in volumes during the month, mainly owing to slowdown in their flagship Corolla sales (down 17% YoY). Unit sales for INDU’s other two variants continued to increase, with Hilux (up 24% YoY) and Fortuner (up by a massive 269% YoY to a record 465 units).

Other segments also performed well

Among other segments, Truck/Bus sales rose 13% YoY during the month, with Ghandhara Industries Limited (GHNI) registering 50% YoY growth in Truck sales to a record high of 397 units (GHNI sold only 4 buses during the month). Among tractors, Al-Ghazi Tractors (AGTL) was the outperformer, with 53% YoY growth. Atlas Honda Limited (ATLH, up 16% YoY) set a new benchmark, breaking the 100,000 unit sales barrier.

INDU our top pick

We reiterate INDU as our top pick, with Dec-2018 Target Price of Rs2,254, with potential upside of 32% from last closing. We highlight that our valuation incorporates slowdown in Corolla volumes, where current 7MFY18 volumes for the company are in line with our estimates. The stock is currently trading at a FY18E P/E of 9.3x, and offering a D/Y of 8%. Key risks to our investment thesis are (1) higher-than-expected PKR depreciation and (2) lower-than-expected demand growth going forward.

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