Market Pulse. Inter. Regulatory changes weigh on auto sales. Pakistan Autos

Transcription

1 Inter Pakistan Autos Regulatory changes weigh on auto sales Research Entity Number REP-085 Pakistan s Auto industry sold 17,662 units in Aug 18, down 20%yoy, taking 2MFY18 sales to 39,006 units, down 6%yoy. During Aug 18, industry posted its first yoy decline since Jun 17 due to (i) earlier than expected impact of non-filer regulation, particularly in PSMC, (ii) lower working days due to religious holidays and (iii) higher car prices slowing demand. Tractor sales totaled 4,041 units in Aug 18, down 21%yoy where high base effect and water shortage are possible factors. 2/3 wheelers sales also continued to show weakness with Aug 18 sales down 18%yoy due to overall inflationary pressures. The impact of ban on non-filer customers was most visible in PSMC due to its lower order book (1-2 months) compared to 3 months for INDU and HCAR. Due to its higher exposure towards non-filers, INDU s sales may witness further weakness in the next 1-2 months, in our view. Indus Motors (INDU): During Aug 18, INDU sold 5,018 units, down 9%yoy with major drag coming from Corolla (down 12% yoy). Fortuner sales also decreased by 23% yoy as numbers have now started to normalize after above expected response to its new model (launched in Jan 17). We think the decline in Aug 18 has more to do with lower working days rather than non-filer ban, as the management had an order size of 15,000 units at the end of Aug 18. However, we do expect short term disruption for INDU in the next 1-2 months due to the new regulation. Honda Atlas (HCAR): HCAR s sales reached 3,961 units in Aug 18, down 15% yoy, where Civic/City and BR-V volumes contracted by 12% and 32% yoy, respectively. According to management, the decline is mainly due to lower working days (as their exposure towards non-filer customers is less than 20%) and they pointed towards their 3+ months of order book. That said, we think, Honda BR-V sales might fail to excite (despite new variant being launched in Apr 18, taking total variants to 3) as demand is starting to normalize within this category. Pak Suzuki (PSMC): PSMC s volumes tumbled by 27% yoy to 8,683 units during Aug 18 where management has attributed this sharp decline to non-filer regulation. Unlike HCAR and INDU, PSMC s order size is less than 2 months, leading to early impact of non-file regulation and is a leading indicator to what may happen to INDU s sales (which has a similar ratio of non-filer customers), in our view. Pak Suzuki has also announced to completely discontinue its legacy model, Mehran from Apr 19 where we expect the company to launch Suzuki Alto (660 or 800 cc) as its replacement next year. While Mehran contributes 30% to PSMC volumes, we think Alto can fill the void quickly, if launched in similar price category, due to non-availability of affordable economy options. Tractors, Trucks and Bikes: Tractor sales declined by 21% yoy to 4,041 units in Aug 18, due to high base impact and water shortage issue. Al Ghazi tractors (AGTL) sales again declined by massive 45% yoy (46% yoy decline in Jul 18) whereas Millat Tractor s (MTL) posted decline of 8% yoy during Aug 18, To highlight, historically AGTL s sales remains on the lower side during 1QFY19 (less than 35% market share compared to 40% average for the full year) but the share has dropped to 24% during 2MFY18. Truck sales also declined by 21% yoy with 615 unit sales in Aug 18 corresponding to lackluster cement sales (local volumes fell 5% in 2MFY18). 2/3 wheeler sales declined by 18% yoy in Aug 18 due to higher fuel prices and general inflationary pressures, in our view. Further Impact of regulatory changes expected While massive decline in PSMC s sales is majorly due to non-filer restrictions due to its lower order book size, we think INDU can go through a similar compression in the next 1-2 months after its order book is exhausted. However, we regard this disruption as short term due to structural demand in the country and several workaround, to circumvent these new regulations. Furthermore, government may tighten the imports of used imported cars (either by increasing duties or lowing the age limit from current 3 years for passenger car) which will be beneficial for the local players (with PSMC being the biggest beneficiary). ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 3,4 &5 Intermarket Securities is the Local Research Partner of Exotix Capital IMS Autos Universe 2019F TP (PKR) Upside/Stance Ahmed Raza ahmed.raza@imsecurities.com.pk Ext: September 2018 P/E (x) PBV (x) DY % PSMC % B % HCAR % B % INDU 1,650 13% N % Source: IMS Research B=Buy, N=Neutral Autos - Sales volume ('000) Industry Performance Industry Sales % -17% % Cars % -18% % LCVs & Pickups % -8% % Tractors % 4% % Trucks % 5% % 2/3 wheelers % -7% % Company wise PSMC % -20% % INDU % -8% % HCAR % -20% % MTL % -1% % AGTL % 29% % HINO % 12% % GHNI % 0% % INDU % -8% % Corolla % -8% % Hilux % -11% % Fortuner % -7% % PSMC % -20% % Bolan % -10% % Ravi % -19% % Mehran % -33% % Cultus % -17% % Wagon R % 0% % Swift % -27% % HCAR % -20% % Civic & City % -25% % BR-V % 32% % Source: PAMA

2 KSE100 Index & Volume Earnings yield vs. T-bill spread 54,000 50,000 46,000 42,000 38,000 34,000 30,000 1, % 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Aug-17 Oct-17 Nov-17 Jan-18 Feb-18 Apr-18 May-18 Jul-18 Aug-18 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Vol. Shares (mn) - Rhs KSE100 Index pts. Earnings Yields - 12m Tbills Spread Source: PSX, IMS Research Sector wise FIPI Flows (US$mn) 11-Sep-18 MTD CYTD FYTD OMC 0.09 (0.2) (14.5) (6.8) Telecom 0.02 (0.1) (2.0) (3.9) Fertilizer Food (0.01) 0.2 (4.5) (5.0) Other (0.06) (0.6) 51.1 (3.6) Power (0.13) (0.5) (18.0) (3.0) E&P (0.21) (1.9) (99.7) (49.8) Cement (0.29) (3.2) (24.6) (21.1) Textile (0.60) (0.6) (16.3) (6.0) Banks (1.32) (7.9) (159.8) (63.6) Total (2.50) (13.1) (277.5) (144.1) World Indices Last Close DoD Δ DoD Δ (%) CYTD Δ (%) FYTD Δ (%) Pakistan 40, % 0.7% -2.7% China 2, % -19.4% -6.4% Hong Kong 26, % -11.7% -8.7% India 37, % 9.9% 5.6% Indonesia 5, % -8.3% 0.5% Malaysia 1, % 0.1% 6.4% Japan 22, % -0.4% 1.6% Singapore 3, % -8.6% -4.9% Korea 2, % -7.5% -1.8% Taiwan 10, % 1.0% -0.8% Bangladesh 5, % -11.2% 2.6% Sri lanka 6, % -4.3% -1.6% Philippines 7, % -12.2% 4.5% Thailand 1, % -4.6% 4.8% Vietnam % 0.1% 2.5% USA 2, % 8.0% 6.2% UK 7, % -5.4% -4.8% Germany 11, % -7.3% -2.7% Portfolio Flows (US$mn) Current 5D MTD 12M FYTD CYTD Total FIPI (2.5) (8.3) (13.1) (314.0) (144.1) (277.5) Individuals Companies (7.0) (6.9) (8.5) Banks / Dfi (67.2) (7.7) (72.4) NBFC (0.1) (9.2) (1.3) (2.0) Mutual Funds (1.3) (41.8) (42.2) (25.7) Other Organization 0.1 (0.3) Broker Trading (0.5) (4.8) (5.7) (49.6) (13.8) (31.9) Insurance Companies Source: NCCPL *Last 5 working days Commodity Prices Close DoD Δ DoD Δ (%) YoY Δ (%) CYTD Δ (%) FYTD Δ (%) Gold - US$/oz 1, % -10.1% -8.4% -4.7% Oil- US$/bbl % 45.5% 15.7% -5.7% Cotton US /lb % 15.0% 5.4% -1.2% Coal - US$/MT % 10.9% 6.7% -2.5% CRY Index % 5.5% -1.1% -4.4% Forex & Money Close DoD Δ YoY Δ bps CYTD Δ bps FYTD Δ bps 6m Tbill yield (%) Y PIB yield (%) m Kibor (%) Close DoD Δ DoD Δ (%) YoY Δ (%) CYTD Δ (%) FYTD Δ (%) PKR/US$ % 17.9% 12.5% 2.3% PKR/EUR % 13.9% 9.0% 1.8% PKR/JPY % 14.8% 13.8% 1.7%

3 I, Ahmed Raza, certify that the views expressed in the report reflect my personal views about the subject securities. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations made in this report. I further certify that I do not have any beneficial holding of the specific securities that I have recommendations on in this report. Ratings Guide* Upside Buy More than 15% Neutral Between 0% - 15% Sell Below 0% *Based on 12 month horizon unless stated otherwise in the report. Upside is the percentage difference between the Target Price and Price. Valuation Methodology: We use multiple valuation methodologies in arriving at a Target Price including, but not limited to, Discounted Cash Flow (DCF), Dividend Discount Model (DDM) and relative multiples based valuations. Risks: (i) PKR depreciation against Yen and US$, (ii) earlier than expected entry of new competitors, (iii) volatility in commodity prices, and (iv) Below expected sales due to curbs on non-filer customers. Disclaimer: Intermarket Securities Limited has produced this report for private circulation only. The information, opinions and estimates herein are not direct at, or intended for distribution to or use by, any person or entity in any jurisdiction where doing so would be contrary to law or regulation or which would subject Intermarket Securities Limited to any additional registration or licensing requirement within such jurisdiction. The information and statistical data herein have been obtained from sources we believe to be reliable where such information has not been independently verified and we make no representation or warranty as to its accuracy, completeness and correctness. This report makes use of forward looking statements that are based on assumptions made and information currently available to us and those are subject to certain risks and uncertainties that could cause the actual results to differ materially. No part of the compensation of the author(s) of this report is related to the specific recommendations or views contained in this report. This report is not a solicitation or any offer to buy or sell any of the securities mentioned herein. It is meant for information purposes only and does not take into account the particular investment objectives, financial situation or needs of individual recipients. Before acting on any information in this report, you should consider whether it is suitable for your particular circumstances and, if appropriate, seek professional advice. Neither Intermarket Securities Limited nor any of its affiliates or any other person associated with the company directly or indirectly accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or the information contained herein. Subject to any applicable law and regulations, Intermarket Securities Limited, its affiliates or group companies or individuals connected with Intermarket Securities Limited directly or indirectly may have used the information contained herein before publication and may have positions in, or may from time to time purchase or sell or have a material interest in any of the securities mentioned or may currently or in future have or have had a relationship with, or may provide investment banking, capital markets and/or other services to, the entities mentioned herein, their advisors and/or any other connected parties

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