Discuss PSX Sector - Automobile Assemblers

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#41
Autos: July numbers a blessed dawn for the Auto OEMs , (AKD Daily, Aug 11, 2017)

July'17 total automotive industry sales grew to 20,369 units (+25.9%MoM/+17.9%YoY) making sure 7MCY17 total industry offtake gallops to 140,703 units (+13%YoY). Major constituents of total industry sales moved +19.8%/+12.1%/+8.2%/+15.2%YoY for Passenger Cars/LCV & Pick‐ups/Trucks/Tractors while buses lagged (‐12.6%YoY). Cumulative 7MCY17 total industry sales grew 13%YoY with LCV & Pickups/Trucks/Passenger car segments contributed +15.4/24.3+/+12.3%YoY. Over the period 1000CC/1300cc plus segment grew +45.6/+8.0%YoY and the 800cc and below inched up by +3.0%YoY lacking a new model jump witnessed in the other segments. On the production front, OEMs cemented their capacity factors over 7MCY17 with PSMC/INDU/HCAR producing at 67/112/83% of annual double shift capacity (vs. 64/119/55% during 7MCY16). Citing catalysts for strong demand growth and mechanisms for controlling costs (particularly from FX swings) we continue to advocate building positions in INDU. We have an FCFE based TP of PkR2,068/sh, where the stock trades at FY18/19F P/E of 9.85/9.48x, accompanied by FY18/19F D/Y 6/6%.
 

xResearch

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#42
Elixir Insight

Automobile Assemblers

New Models Drive Automobile Sales

  • Jul-17 automobile sales clocked in at 177,074 units which denotes growth of 23/43% MoM/YoY as new models / facelift drove customer demand.
  • Passenger Cars and Jeeps posted strong volumetric growth, rising 35% and 21x YoY respectively, to close the month at 16,338 and 960 units respectively.
  • HCAR outperformed its peers as its latest product offering continued to attract strong consumer demand. The City / Civic duo’s volumetric offtake reached 3,821 units which implies growth of 81/80% MoM/YoY.
  • Truck sales also remained strong during the month, growing 9/20% MoM/YoY while tractor sales were up 125% YoY.
  • We maintain a Marketweight stance on the sector and identify INDU as our top pick; against our Jun-18 PT of PKR 2,139, the script currently offers a potential upside of 27% which includes FY18E dividend yield of 8%.

Consumer Cars Rebound as Ramadan Effect Fades: According to the latest PAMA numbers, total automobile sales rebounded in Jul-17 recording an increase of 23/43% MoM/YoY as the Ramadan effect faded. Passenger Cars and Jeeps continued their strong sales momentum recording gains of 35% and 21x respectively against SPLY driven primarily by new model launches and Facelift. (Refer to the table for detailed segment, company and product wise breakup of sales numbers).

The 1300cc car segment grew at a pace of 45/30% MoM/YoY as customers flocked in fo r the latest models. Within the space Honda Atlas Cars (Pakistan) Limited’s (HCAR) City/Civic duo posted sales growth of 80/81% MoM/YoY. Likewise, Indus Motors Company Limited’s (INDU) flagship Toyota Corolla sales increased 29/5% MoM/YoY. Pak Suzuki (PSMC) continued its dominance in the lower passenger car segment, where strong volumetric growth of 16/77% MoM/YoY in Suzuki WagonR pushed the 1000cc sales growth to 12/72% MoM/YoY.

Heavy Vehicle Sales Continue Strong Momentum: Heavy vehicle sales for the month of July continued i ts strong growth momentum as tractors recorded an increase of 125% YoY but remained flattish sequentially. We attribute this increase to reduction in tractor prices in the wake of reduction in GST. Truck Sales for the month of July were up 9/20% MoM/YoY as CPEC related construction activity continued to boost demand.

HCAR Leads the Pack: Amongst automobile assemblers, HCAR outperformed its peers on the back of the Honda City/Civic duo, which witnessed phenomenal growth of 81/80% MoM/YoY, allowing the company to post overall sales growth to 58/113% MoM/YoY. Honda BRV’s strong sales trajectory slowed down during the month, as the new model excitement subsided, witnessing a sequential decline of 9%.

INDU’s Toyota Corolla sales gained pace during July as it witnessed sequential growth of 29%. This comes due to
  1. low base effect as customers withheld purchases in Jun-17 in anticipation of the Corolla Facelift and
  2. delivery of the Facelift Corolla which officially started last month.
Sales growth for PSMC also remained robust, registering growth of 16/37% MoM/YoY primarily due to strong volumetric offtake of Suzuki WagonR and the recently launched Suzuki Cultus (up 66% YoY).

Outlook: Looking ahead into FY18, we project passenger cars/jeep sales growth to remain strong due to i) the recent launch of the Honda City Facelift and Toyota Corolla, ii) higher auto financing on the back of low interest rate environment and iii) higher purchasing power due to rising income levels. We also identify Punjab governments “Orange Taxi Scheme” (50,000 units) as a possible positive trigger. The heavy vehicles segment should also continue its growth trajectory on the back of construction activity stemming from CPEC projects and the resultant uptick in transportation sector.

We currently maintain a Marketweight stance on the sector and identify INDU as our top pick on the back of strong Corolla franchise, expected rebound in sales over FY18 and upcoming capacity expansion. Against our Jun-18 PT of PKR 2,139, the script currently offers a potential upside of 27% which includes FY18E dividend yield of 8%.
 

xResearch

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#43
11 August 2017
Foundation Securities (Pvt.) Limited


Automobiles: Boisterous start to new FY

Automobile sales ignited with the advent of the new FY (up 44% YoY). Notable contribution once again came from trucks and tractors, with HCAR and Wagon R also making positive contributions. Sales were up 16% MoM in July-2017.

We foresee volumes to remain upbeat in FY18 as underlying macros remain intact whereas introduction of new models/variants is to add additional fervor, in our view. We see current valuations as ideal entry points for both PSMC and INDU.

Sharp growth across the board: Sales remained buoyant in 1000cc segment (up 12%/72% MoM/YoY) led by robust WagonR sales (up 16%/77% MoM/YoY) in July-17. Whereas Cultus registered a healthy growth (7%/66% MoM/YoY) courtesy of its new model. The 1300cc segment showed sharp recovery in July-17 (up 45%/30% MoM/YoY). Continued excitement of the new Civic supported sales of City&Civic, up 81%/80% (MoM/YoY) Corolla sales recovered on sequential basis due to low base effect (up 29%), however YoY growth remained in control (up 5% YoY). Courtesy of Mehran, the 800cc segment displayed growth of 7%/11% (MoM/YoY) in July-2017.

Truck, tractor sales remain strong: Construction dependent sectors once again showed strong growth, with tractors (also benefiting from improving farmer conditions) recording growth of 4%/125% (MoM/YoY) with YoY growth amplified due to low base effect. Sales of AGTL showed change of -1%/147% (MoM/YoY), whereas sales of Millat were up 7%/115% (MoM/YoY). Sales of trucks were up 9%/20% (MoM/YoY) in July- 2017. Sales of Hino were down/up 3%/14% (MoM/YoY), whereas Isuzu sales registered a sharp incline on YoY basis (59%) but were down 3% on sequential basis.

Truck, tractor sales remain strong: Construction dependent sectors once again showed strong growth, with tractors (also benefiting from improving farmer conditions) recording growth of 4%/125% (MoM/YoY) with YoY growth amplified due to low base effect. Sales of AGTL showed change of -1%/147% (MoM/YoY), whereas sales of Millat were up 7%/115% (MoM/YoY). Sales of trucks were up 9%/20% (MoM/YoY) in July- 2017. Sales of Hino were down/up 3%/14% (MoM/YoY), whereas Isuzu sales registered a sharp incline on YoY basis (59%) but were down 3% on sequential basis.
 

xResearch

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#44
AKD Daily
11 August 2017

Autos: July numbers a blessed dawn for the Auto OEMs


July'17 total automotive industry sales grew to 20,369 units (+25.9%MoM/+17.9%YoY) making sure 7MCY17 total industry offtake gallops to 140,703 units (+13%YoY). Major constituents of total industry sales moved +19.8%/+12.1%/+8.2%/+15.2%YoY for Passenger Cars/LCV & Pick-ups/Trucks/Tractors while buses lagged (-12.6%YoY). Cumulative 7MCY17 total industry sales grew 13%YoY with LCV & Pickups/Trucks/Passenger car segments contributed +15.4/24.3+/+12.3%YoY. Over the period 1000CC/1300cc plus segment grew +45.6/+8.0%YoY and the 800cc and below inched up by +3.0%YoY lacking a new model jump witnessed in the other segments. On the production front, OEMs cemented their capacity factors over 7MCY17 with PSMC/INDU/HCAR producing at 67/112/83% of annual double shift capacity (vs. 64/119/55% during 7MCY16). Citing catalysts for strong demand growth and mechanisms for controlling costs (particularly from FX swings) we continue to advocate building positions in INDU. We have an FCFE based TP of PkR2,068/sh, where the stock trades at FY18/19F P/E of 9.85/9.48x, accompanied by FY18/19F D/Y 6/6%.

INDU: July sales were up by +28.3%MoM, yet softened -15.2%YoY mainly due to Corolla sales resting at 3,875 units +28.8%MoM/-4.1%YoY for the three year old variant. The booking of a newer facelift option (starting Aug'17) is a dampener for demand through to 1HFY17, where customers tend to hold back on ordering the current variant. This can be evidenced from the launch of the previous variant as well, where demand for the previous offering reached a crest approximately 1Q before the launch on Aug'14. Additionally for recent variant launches witnessed weak sales in the initial months of launch, a normal occurrence, with production hurdles and softer delivery targets expected to prolong the order book for the facelift as well. Hilux/Fortuner SUV sales continued to ascend growing +34.8/+13.0%MoM and -64.2%YoY/+2.21xYoY, where both variants have pushed INDU's share in the 4x4 and LCV market to 28% in 7MCY17 vs. 26% in 7MCY16.

PSMC: PSMC sales jumped along with the industry players (+16.1%MoM/+14.1%YoY) underpinned by demand pickup for nearly all variants with +7.1%/+16.3%/+6.8%/+31.3%/+44.9%MoM increase in Cultus/Wagon R/Mehran/Ravi. Relatively nascent offerings of the Wagon R/Cultus continued growing +58.8/18.4%YoY beating Mehran/Swift sales of +1.8/-24.6%YoY.

HCAR: Sales growth showed an upsurge of +57.5%MoM/+134.2%YoY. The Civic is seen to continue driving sales as demand accelerates from positive reviews and consumer satisfaction. For the recently launched BR-V, July'17 sales were at 690 units for the month below the average for the last quarter (720 units sold monthly), its first quarter of full sales. Weaker monthly sales going forward may indicate a relatively soft reception for the variant, highlighting the limitations of brand power and competitive pricing relative to features and design in the domestic passenger car segment.

Investment Perspective: Auto sector has declined 13.7% FYTD where continued fears of currency devaluation, lower consumer confidence (165.43 for July'17, -1.7%MoM) and a general deterioration in the political environment prolonging 'risk-off' sentiment. That said, we believe the sell-off has reached a bottom where valuations are looking buoyant. Retaining our bullish thesis on INDU citing broad based composite of growth from healthy order books (delivery in 4-5months) of the recently launched Fortuner & Revo, and the Corolla facelift order book commencing from August'17, reviving demand for the OEMs flagship offering (contributes 82.7% to gross sales). From the costs side, sustained margins from increased prices (PkR 30,000-160,000 on Corolla variants) and low sensitivity to PkR/US$ depreciation (every 5% move in the currency lowers NPAT by ~1%). We have a FCFE based TP of PkR2,068/sh, where the stock trades at FY18/19F P/E of 9.85/9.48x, accompanied by FY18/19F D/Y 6/6%.
 

xResearch

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#45
Aba Ali Habib Research
13 September 2017

Pakistan Auto Sector’s Volume Update Aug’17
Car sales outperformed, surged 23% YoY and 14% MoM during Aug’17

  • Industry car sales surged by 23% YoY where PSMC lead the pack witnessing an incline in sales volume of 34% YoY followed by HCAR (+24% YoY) and INDU (+5% YoY). Industry car sales volume clocked in at 18,665 units. Company wise, PSMC outperformed peers posting sale of 9,937 units in Aug’17, with a growth of 15% MoM, mainly due to strong sales of Swift (+51% MoM), Mehran (+38% MoM) and Wagon R (+13% MoM),. HCAR depicted an increase of 3% MoM and sold 3,946 units due to upbeat demand of its popular new civic model (+3% MoM). INDU sold 4,782 units depicting 23% increase MoM mainly fueled by Corolla (+23% MoM).
  • Low GST, continuation of fertilizer subsidy and Kissan package by Punjab government left an overall positive impact on tractor sales where tractor industry sales recorded a massive increase of 1.15x YoY in Aug’17. Company wise AGTL sales increased by 1.45x YoY and MTL sales increased by 1.0x YoY due to export of tractors to Africa and Middle East.
  • Industry trucks sales increased by 28% YoY in Aug’17 where GHNI's sales grew by 69% YoY, followed by HINO with 23% YoY growth. GHNL, however, posted null sales in Aug’17 mainly due to discontinuation of Nissan and absences of Dongfeng truck sales units in PAMA data.
  • Aug-17 bus segment sales declined by 23% YoY where HINO’s sales declined by 40% YoY while GHNI posted 75% decline in its bus sales during the same period.
Industry update Aug'17_Page_1.jpeg
 

xResearch

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#46
BMA Capital
13 September 2017

Pakistan Automobile
Aug’17 auto sales at 10 - year high; PSMC & INDU lead the way

  • As per the latest data, auto sales accelerated further in Aug' 17, up 13% MoM to 22,095 units marking the highest ever monthly volumes in last 10years.
  • INDU (+20% MOM) and PSMC (+14% MOM) sales shined during the month, whereby Toyota Corolla, Suzuki Mehran, Wagon-R and Swift turned out to be major leaders.
  • We highlight that strong demand dynamics in auto space remains key theme to play for FY18 led by (i) low inflation, (ii) low interest rates (favorable for auto financing), (iii) demand emanating from CPEC projects, and (iv) upward growth trajectory.
  • Sector underperformance of 11% in last 3-mths is clearly attributed to imminent risk of disorderly exchange rate depreciation, which does not bode well for sector margins.
  • While an orderly PKR/USD devaluation can be passed on by the assemblers, we flag downside risk could stem from a worse scenario of combination of sharp exchange rate deval and interest rate hike, which could result in double whammy for current strong demand dynamics.
  • INDU remains our top pick at TP of PKR2,297 (33% upside) given its better pricing power, better D/ Y of 7.2% compared to peers, and strong investment position.
Strong sales continue to impress:
As per the latest data released by Pakistan Automotive Manufacturers Association (PAMA), auto sales accelerated further in Aug' 17, up 13% MoM to 22,095 units marking the highest ever monthly volumes in last 10 years. Sector underperformance of 11% in last 3-mths is clearly attributed to imminent risk of disorderly exchange rate depreciation, which does not bode well for sector margins. We highlight that strong demand dynamics in auto space remains key theme to play for FY18 led by (i) low inflation, (ii) low interest rate (favorable for auto financing), (iii) demand emanating from CPEC projects, and (iv) upward growth trajectory. While an orderly PKR/USD devaluation can be passed on by the assemblers in our view without hurting margins much, we flag downside risk could stem from a worse scenario of combination of sharp exchange rate devaluation leading to car price hike as well as fuel cost increase, andinterest rate hike which could result in double whammy for current strong demand dynamics.

Aug' 17 sales:
INDU (+20% MOM) and PSMC (+14% MOM) sales shined during the month, whereby Toyota Corolla, Suzuki Mehran, Wagon-R and Swift turned out to be main leaders. It is worth noting that tractor and HCV sales remain upbeat in 2MFY18 (up 119% YOY and 17% YOY respectively) thanks to favorable impact of (i) pro-agricultural policies for tractors, and (ii) rising transportation requirements (SUVs and HCVs demand) due to CPEC projects. Key trends are as follows:

Indus Motor Company: INDU saw Corolla sales jump to 4,782 units from a dull patch in last 2 months (average 3,442 units) due to some production issue. On YOY basis, INDU's total sales are up 6% in 2MFY18. We see improved growth in Corolla in 2HFY18 as deliveries of face-lift Corolla vary from 3 to 6 months from now.

Pak Suzuki Motor Company: While Mehran sales have recovered from a sluggish patch in last two months, Wagon-R sales have also made a mark in Aug' 17, growing by 14% MoM and 76% YOY in 2MFY18. Sales for Swift have as expected resumed post a backlog due to discontinuation of Swift (basic) variant in early June which led to PSMC compensating its buyers for the delayed deliveries with installation of Navigation free of cost. Looking ahead, any development on Orange Taxi scheme poses upside for PSMC. While details on the same are scarce, likely variants to be included in the scheme will reportedly be Mehran, Wagon R and Bolan.

HCAR: HCAR sales saw steady run (up 3% MOM) and are up 73% YOY in 2MFY18 due to absence of BR-V last year and upbeat Civic sales.

Exchange rate sensitivity:
Given risk of exchange rate devaluation hanging in the balance, we run sensitivity for OEMs for PKR/USD and JPY/USD over and above our base-case estimate of 4% and 3.25% respectively for FY18. With a built-in assumption of no pass-on to consumers, a 5% PKR/USD devaluation in FY18 over and above our base case, would negatively impact earnings by 7%/17.4%/17.5% for INDU/PSMC/HCAR. In case of JPY/USD, the earnings impact from 5% additional devaluation would be positive at 2.6%/13.3%/2% respectively.

Investment thesis:
INDU remains our top pick at TP of PKR2,297 (33% upside) given its better pricing power, better D/ Y of 7.2% compared to peers, and strong investment position to benefit in case of higher interest rates. Key risks include (i) unprecedented sharp exchange rate devaluation in near-term, and (ii) slowdown in CPEC-led demand.

9132017_Page_2b.jpg
 

xResearch

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#47
BMA Research
24 October 2017

Pakistan Automobile
Earnings set to impress in Sep’17 results

  • Profitability of auto assemblers’ is estimated to grow by significant 43%YoY/28%QoQ in Sep ending quarter, attributed to improved margin contribution from favorable sector dynamics and round of car price hikes.
  • INDU is expected to post 35%YoY/49%QoQ growth to EPS of PKR52.38, accompanied by an expected interim dividend of PKR37/sh.
  • PSMC is expected to lead profitability growth (52% QoQ to EPS of PKR12.6) due to a low base, helped by LCV’s price hike, improved sales mix and strong volume growth (up 12%QoQ).
  • HCAR’s earnings are anticipated to increase by 31% YoY to PKR1.9bn (EPS PKR13.6), thanks to 56% higher volumes (addition of BR-V). However on QoQ basis, earnings attrition of 7% is attributed to an expected booking of 3% super tax for tax year 2017 (skipped last quarter).
  • Our top pick is INDU with a TP of PKR2,297 offering 30% upside from last closing and FY18E D/Y of 7.2%.
Profitability of assemblers expected to surge in Sep ending qtr: Stock performance of auto assemblers since FY18 to date (-11% relative to index) has not reflected the anticipated growth in profitability of auto assemblers, due to underlying worry of sharp exchange rate fluctuation and ensuing impact on margin and volumes. We expect 43%YoY/28%QoQ growth in profitability of auto assemblers (INDU, HCAR, PSMC) during the quarter. Sector-oriented drivers including strong demand dynamics and reasonably favorable exchange rate movement (average PKR/USD, and PKR/JPY remained stable) should help support margins this quarter. A round of price increase for Toyota models (updated Corolla price hike and 2-3% for Hilux and Fortuner), and for PSMC (prices of LCVs increased in Aug’17) will likely contribute to margin accretion.

INDU: We expect a whopping 35%YoY increase in profitability of INDU in its 1QFY18, to an EPS of PKR52.3, accompanied by dividend of PKR37/sh (result due on 27 Oct). The increase is primarily led by 5%YoY volume growth, and improved sales mix (high-margin Fortuner and Hilux contribution to sales is up to 15% from 12% earlier). On QoQ basis, (1)Fortuner volumes up by stellar 40%QoQ (2) price hike of various Toyota model (Corolla face lift, coupled with Hilux) has led to improved margin expectation.

PSMC: We see EPS of PSMC to clock in at PKR12.6 (result due on 24 Oct), which reflects a significant 52%QoQ and 137%YoY reflecting a low base. As a result, earnings in 9M17 are likely to be up by 62% YoY to PKR36.8. As per usual payout policy, the result is unlikely to be accompanied by dividend announcement, though the company will likely have to increase its end of year payout or face penalty (7.5% of undistributed profits) in case it is less than 40% of PAT. We attribute this to (1) 3-4% price hike in Bolan and Ravi from Aug’17 coupled with 12%/37%QoQ jump in sales respectively and (2) improved sales mix due to stellar growth in Wagon-R volumes by 14%QoQ (vs total PSMC sales increasing by 12%QoQ) and discontinuation of lower priced Swift in Jun’17. As a result, we expect margins to improve considerably to 10.4% from a steep dip seen in 2Q17 at 8.4%.

HCAR: We estimate HCAR earnings to slow down on sequential basis by 7%, though still up by impressive 31%YoY to an EPS of PKR13.6. Sequential decline from EPS of PKR 14.6 recorded in 1QMY18 is solely attributable to potential imposition of 3% super tax (tax expense of ~PKR382mn or PKR2.7/sh which the company seems to have skipped last quarter). All in all, HCAR’s volume growth story continues, whereby volumes during the quarter were up by 14% QoQ and 56% YoY. With exchange rate relatively stable during the quarter and no price hike witnessed, we see favorable impact on margins for the company to some extent given higher volumes, with gross margins expected to increase to 15.3% from 14.2% last quarter.
 

xResearch

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#48
AKD RESEARCH
7 December 2017


Autos: Incumbents gear-up for competition

Awaiting monthly sales figures for a seasonally slow month, we look at developments on the ground concerning new variants launched, order books curtailed and activity base for new entrants. PSMCs recent launch of new vehicle offerings, the Mega Carry in the CBU pickup category and the auto gear shift Cultus AGS extend the OEMS drive to enhance quality. However, we believe the impact of these variants is expected to be minor, as the premium price point for both hinders sales growth, in our view. For INDU, the company expects robust demand from upcoming pre-election premium SUV buying spree, where the Fortuner and Revo variants are expected to deliver strong growth, buoyed by plans to introduce the 3.0L diesel variant of the Fortuner. As for new entrants, we present an updated snapshot of announces investment plans, while sector-wise FDI data until October'17 shows a minor increase for net FDI under Transport Equipment category where 4MFY18 cumulative net FDI of US$15.5mn is higher by 5.4%YoY.

New variants lack attractiveness: PSMCs recent launch of new vehicle offerings, the Mega Carry in the CBU pickup category and the auto gear shift Cultus AGS extend the OEMS drive to enhance quality. However, we believe the impact of these variants is expected to be minor, as the premium price point for both (PkR 1.49/1.53mn for Mega Carry/Cultus AGS). In this regard, pickup segment is littered with cheaper alternatives offering similar features while Cultus AGS's price tag tops the Swift Auto Navi (1.51 mn) nearing the Honda City 1.3 MT (PkR 1.55mn). Additionally, on the CAPEX front, the OEM continues to enhance indigenisation with channel checks suggesting enhanced deletion levels between the Wagon-R and recently launched Cultus.

Election buying expected to spur demand: Management at INDU remains upbeat on the firm's prospects for solidifying its position in the market, while alluding to possible model launches and even entry into additional product segments. Patched from media reports, analyst briefing notes and channel checks we know that the company expects robust demand from upcoming pre-election premium SUV buying spree, where the Fortuner and Revo variants are expected to deliver strong growth, buoyed by the plans to introduce the 3.0L diesel variant of the Fortuner. Remaining ahead of any adverse regulatory/public backlash over rent-seeking behaviour or 'own charged by intermediaries, effectively negating the Provisional Order Book system, INDU conducted a detailed critique of all orders till FY18E, cancelling 1,288 orders. Ascertaining the source of these orders as being purely speculative, the cleaning up the order book rationalizes finance costs (delayed deliveries carry overdue payment charges) while keeping business open for genuine sales.

New entrant updates: On the end of new entrants, we present an updated snapshot of expected new entrants including private, unlisted players as well. Additionally, sector-wise FDI data until October'17 shows a minor increase for net FDI under Transport Equipment category where 4MFY18 cumulative net FDI of US$1 5.5mn is higher by 5.4%YoY (inflows into the sector jumped US$7.3mn to US$22mn during the period). It must be noted that these numbers remain indicative and exclude domestic industrial groups investing indigenous funds into Greenfield CAPEX (Lucky investing in purchasing land and conducting preliminary civil works).

Investment Perspective: We continue to remain upbeat on underlying demand remaining strong, where primary risks include a breakdown in the general socio-political scenario cratering demand. Additionally, higher oil prices could impose blowback on inflation hurting disposable incomes. That said, we believe strong orderbooks, premium SUV offerings and enhanced production capacity for INDU make the OEM a preferred stock for leveraging encouraging consumer demand growth. Our TP of 2,069/sh offering -1 8% upside accompanied by FYI 8/1 9F D/Y of 6.3/6.3%.

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xResearch

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#49
AHL RESEARCH
11 December 2017


Nov’17: Auto sales up by 18% YoY

5MFY18: Total cars sales up by 29% YoY
PAMA released auto data for the month of Nov’17 with total car sales at 21,091 units (including LCVs + 4x4), down by 10% MoM and up by 18% YoY respectively. In 1300cc and above category, sales depicted a growth of 1% MoM but were down by 5% YoY to 8,087 units mainly on account of stable demand of Civic/City and delivery of pre booked Corolla. Dispatch of 1000cc category cars exhibited an uptick of 31% YoY while sales were down by 30% MoM to 3,479 units particularly due to massive one-off sales uptick witnessed in Wagon R during the month of Oct’17. Whereas, in the below 1000cc category, Mehran did not fail to astonish as sales continue to rise to clock-in at 3,958 units (up by 30% YoY and down by 9% MoM). In LCVs and 4x4 category, Honda BR-V remained the only vehicle to post a sales growth of 14% MoM.

On the other hand, dissecting tractors numbers displayed a slow-down of 8% MoM / growth of 8% YoY to 5,556 units.

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xResearch

Active member
Apr 9, 2017
1,818
1
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#50
ABA ALI HABIB RESEARCH
12 December 2017


Pakistan Auto Sector’s Volume Update Nov’17
Car sales increased marginally by 8% YoY

  • Industry car sales surged 8% YoY during November’17 and stood at 17,233 units. PSMC outperformed the market by selling 9,488 units (20% increase YoY) However, MoM sales faced a decline of 19% where sales stood at 11,769. The overall sales of the company slowed down where wagonR/Bolan/Mehran witnessed a decline of 39%/19%/9% MoM. HCAR showed minimal growth of 4% YoY whereas, MoM sales declined by 6%. Indus among peers was the only company to have faced growth on MoM basis as the sales of its flagship brand corolla picked pace and stood at 4,537 units.
  • 5MFY18 Tractor industry sales surged by 54% YoY where AGTL sales recorded an increase of 60% YoY followed by MTL (55% YoY). Similarly, during Nov’17 a minimal growth of 8% was witnessed in local sales YoY. MTL’s sales recorded a marginal increase of 5% YoY whereas, AGTL witnessed an incline of 15% YoY.
  • Industry trucks sales stepped up by 13% YoY in Nov’17, where GHNI's sales grew by 49% YoY, followed by HINO with 16% YoY growth.
  • During Nov’17, bus segment sales declined by 76% YoY where GHNI’s sales declined by 85% YoY followed by HINO with 74% decline in its bus sales during the same period.
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xResearch

Active member
Apr 9, 2017
1,818
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#51
AKD RESEARCH
12 December 2017


Autos: Nov'17 sales numbers are nothing to complain about

Total automotive industry sales moved -9.6%MoM/+17.6%YoY for Nov'17 with total industry sales clocking in at 21,765 units, taking
cumulative lIMCY17 sales to 229,085 units (+18.6%YoY). Adhering to the trend of seasonal weakness from the month of November, negative movement of -1 1 .2%/d-2.1 %/4.4%/-60.5%/-8.1 % for Passenger Cars/LCVs & Pickups/ Trucks/Buses/Tractors was witnessed. Running a basic time series analysis of MoM moves between Nov vs. Oct between CYl1-16 shows an average total industry sales unit dip of -2.2%MoM, which falls to -7.1% ex CY16 (Rozgar scheme year). Category-wise declines were led by the 1000CC category (- 29.5%MoM/+31.4%YoY) followed by 800CC and below (-12.3%MoM/+16.8%YoY) while the 1300CC+ segment sales sustained momentum (+1.0%MoM/-5.1%YoY). Additionally, for the outgoing month INDU/PSMC/HCAR reported their capacity utilization at 118.8%/91.5%/108.4%, taking the lIMCY17 capacities to 112.4%/87.7%/95.8% for SPLY. We remain upbeat on INDU's prospects for passing on any price hikes (following recent PkR weakness), while capacity expansion raises the OEMS ability to meet any escalation in demand.

SmartSelectImage_2017-12-12-23-22-06.jpg

INDU: November sales were up by +4.5%MoM mainly due to the Corolla sales rising +7.6%MoM to 4,537 units. Fortuner/Hilux sales dampened -
17.2%/-6.0%MoM, taking 11 MCY17 sales for both to 2,578/5,373 units, up +409%/+1 I %YoY. Overall INDU sales experienced a minor slip of -0.6%YoY/-0.6%YoY for Nov'17/11MCY17, despite a healthy order book for all variants presenting a case of capacity utilization crest (INDU capacity utilization for 1 1 MCY17 at 1 12%).

PSMC: Sales for the outgoing month for the incumbent fell 17.7%MoM, mainly from failing to keep-up Wagon-R sales which deteriorated -39.2%MoM. This may indicate that the previous month's surge could be driven through ad-hoc fleet sales orders instead of organic retail demand. All variants offered experienced digression on MoM basis with sales for Swift/Cultus/Mehran/Bolan/Ravi down -8.6%/-6.5%/-9.1%/-18.8%/- 7.6%MoM.

HCAR: Sales for Nov'17 remained in-line with capacity utilization leve crossing 100% (108% capacity utilization for the month). Sales for the outgoing month marginally reduced by -1 .1 %MoM while growing +43.9%Yo taking cumulative sales for lIMCY17 to 44,159 units, up +50.9%YoY.

Honda BR-V sales continue to break previous month's records, climbing to 1,248 units, rising +14.4%MoM amidst increasing consumer adoption following the launch. As per our dealer checks, Honda City remains booked till Feb'18 along with Honda Civic booking to Jun'18 presenting a strong order book.

Investment Perspective: INDU's unhindered ability to pass on cost-increases in response to recent PkR devaluation to its consumers, a healthy order book for all variants (pre-booked to at least Feb'18 even after order book cleanup) and upcoming debottleneck activity coming online in I QCY18 to enhance capacity (increasing to 75K/annum), all lead us to believe that demand for INDU's products are to remain intact. Furthermore, the OEMS significant stronghold in terms of market share (current market share of 54% in 1300 & above, 18% in LCVs & Pickup and 100% in SUVs for 11MCY17), make INDU a compelling investment thesis. Our TP of 2,069 offers 23.8% upside, accompanied by FY18/19E D/Y of 6.6/6.6%.

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xResearch

Active member
Apr 9, 2017
1,818
1
38
#52
AKD RESEARCH
14 December 2017


Autos: "Go out with the old and in with the new"

Prevailing competitive dynamics in the auto space can be said to be nascent at best. Taking cues from past offerings of now defunct OEMS (KIA, Hyundai, Nissan), we construct a case for why new entrants are expected to penetrate the passenger car market. Highlighting the minimal impact these offerings made in the past (largely from idiosyncratic factors hindering proper production runs), we compare their performance to older variants offered by incumbent OEMS (FX, Baleno, Liana, etc.). Lastly, looking at the
average life of variants offered by incumbents (INDU, HCAR, PSMC) the stretched production life of PSMC's offerings remains unsustainable in the face of emerging threats from new entrants, in our view. Comparing local model launches with the international release of variants by incumbents we emphasize the shortening of the product life cycle for local OEMS as an unavoidable trend for local OEMs.

Old variants were a mixed bunch: Looking back at the last two decades we take cues from the performance of obsolete/defunct OEM variants.
Focusing on offerings by KIA, Hyundai (by DFML) and Nissan (GHNL) we collate performance metrics revealing their impact on industry segmentation against models being offered in the past by current OEMS (FX, Baleno, Liana, etc).

Why this time is different: Idiosyncratic factors likely limited production runs for these variants which included unworkable debt arrangements by OEMs leading to inability to manage production ramp-ups and concerns over product quality and acer sales services. Suffice it to say, their second foray into the domestic auto space is expected to carry more weight, particularly when backed by large conglomerate groups (KIA with LUCK, Hyundai with NML and Renault with Al-Futtaim). Even so, between the two, Hyundai's Santro offering was able to garner greater support attributed to its mass-market pricing, low displacement compact design, elucidating
key-opportunities advice for the upcoming entrants.

What incumbents are doing: Amongst the incumbents, in the passenger car segment we highlight the low average life of a model (counting facelifts, model upgrades and new variants) with premium segment OEMS, INDU
and, HCAR being at the forfront of upgrading their offefings frequently.

Investment Perspective: Comparing local model launches with the international release of these variants, we emphasize the shortening of the
product life cycle for local OEMS based on improved designs, additional features offered by their primary parts suppliers globally. HCAR and INDU remain at the forefront of this development, where these factors can bo-
seen as positive catalysts for driving demand for their variants. In the case of PSMC we can see the significant lag (still in the decades) between rolling-out of models globally and at home. INDU remains highly competitive on all dynamics discussed, consistently with up-grading variants (upcoming- debotteneck activity, launch of new 3.0D Fortuner variant) keeping us' steadfast on our TP of PkR2,069/sh which offers a24.4%
 
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xResearch

Active member
Apr 9, 2017
1,818
1
38
#53
AHL RESEARCH
11 JANUARY 2018


Auto Volumes
1HFY18 Marked 27% YoY Growth in Auto Sales


1HFY18: Auto Sales grew by 27% YoY
Auto sales data released by the Pakistan Automotive Manufacturers Association (PAMA) for 1HFY18, showed increase in total car sales of 27% YoY (including LCVs + 4x4). Below 1000cc category sales increased by 29% YoY due to higher sales of one of the lowest-priced locally assembled car Mehran which clocked-in at 22,219 units compared to 17,167. In 1000 cc segment, sales recorded a massive growth of 61% YoY to 23,642 vs 14,669 units led by WagonR sales which jumped up by 87% YoY during 1HFY18 to 14,141 units vis-à-vis 7,565 units in SPLY. Sales of LCVs + 4x4 underwent a stunning 47% YoY uptick amid HCAR’s SUV variant BR-V which added 5,158 units in 1HFY18 coupled with Toyota’s second generation Fortuner and Suzuki Ravi whose sales increased by 6.9x times YoY and 29% YoY, respectively. Likewise, 1300cc & above sales exhibited an increase of 6% YoY to 47,089 units compared to 44,452 units, decline in sales of Corolla by 2% YoY which kept growth subdued.

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Dec’17: December Depression Sustained
During the month of Dec’17 sales registered a decline of 9% MoM to 19,237 units (including LCV’s + 4x4’s) mainly on account of customers preference to get cars delivered in new year. As we dissect auto data for the month of Dec’17, it is revealed that HCAR sales depicted significant decline of 28% MoM attributable to debottlenecking of Honda’s paint shop to enhance its capacity which limited production of the OEM. While INDU sales declined due to the company cracking down and cancelling pre-booked orders of cars during the month due to excess premium charged by dealers/investors. On the other hand, outperformance of MTL continued to impress as sales witnessed a growth of 20% MoM.

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xResearch

Active member
Apr 9, 2017
1,818
1
38
#54
AHL RESEARCH
11 JANUARY 2018


PAMA Numbers
Dec’17: December Blues



1HFY18: Total cars sales up by 27% YoY
PAMA released auto data for the month of Dec’17 with total car sales at 19,237 units (including LCVs + 4x4s), down by 9% MoM and up by 20% YoY, respectively. In the 1300cc and above category, sales depicted a decline of 18% MoM and 3% YoY to 6,652 units mainly on account of customers preference to get car delivered in new year along with debottlenecking of Honda’s paint shop to enhance its capacity which limited production of the OEM. On the other hand, Indus Motors Company cracked down and cancelled pre-booked orders of cars during the month due to excess premium charged by dealers. Dispatch of 1,000cc category cars exhibited an uptick of 59% YoY and 22% MoM to 4,257 units particularly due to massive demand from Careem, Uber and other transportation businesses. While Wagon R and Cultus sales registered a growth of 30% MoM and 10% MoM, respectively. In the below 1,000cc category, Mehran sales continued to remain stable at 3,390 units (up by 22% YoY and down by 14% MoM). In LCVs and 4x4s category, Honda BR-V, Toyota Fortuner and Suzuki Ravi sales were down by 40% MoM, 18% MoM and 13% MoM while Hilux sales grew by 1% MoM, respectively.

Tractors sales displayed a slow-down of 10% MoM while registering an enormous growth of 55% YoY to 4,976 units. During the month, AGTL witnessed a decline of 50% MoM while MTL managed to capture market and posted growth of 20% MoM to 3,733 units.

auto-dec17-3.png
 
Apr 11, 2017
83
1
8
#55
Automobile Assembler: Capacity constraints - Achilles heel of the sector

Wednesday, 07 February 2018
BIPL Securities Limited

  • We initiate coverage on Pakistan Automobile Sector with a ‘Market Weight’ stance. Our investment case on the sector stems from i) volumetric growth matching GDP growth, ii) rising cash reserves translating into robust 3yr CAGR of 9% in other income and iii) high pricing power in the medium term.
  • Though prospective investment plans of various international brands pose a risk to volumes and pricing power for the existing OEMs, their commissioning is still far ahead and thereby dilutes the above said risk.
  • Capacity constraints for the existing OEMs is the prime reason for our market weight stance on the sector as it limits the ability of the sector to capture the growth in automobile market size.
  • Any plans by the industry to expand or go for a major debottlenecking can potentially open up valuations for the sector. We have INDU as our top pick in the sector with a target price of PKR1,979/sh, offering a total return of 18% (10% upside; 8% dividend yield).
 
Apr 9, 2017
1,818
1
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#56
ALFALAH SECURITIES
13 FEBRUARY 2018


Sales might lose steam going forward due to
the recent negative developments


The annulment of Regulatory Duty (RD) on new & used vehicles and allowance of used car imports without bank encashment certificate will take a toll on local OEMS (especially PSMC), who were already facing the brunt of PKR devaluation (PKR has devalued by 5.0% over last three months) and rising steel prices (up 8.8 % YoY).

The permission to import vehicles under previous rules (without bank encashment certificate), would have a detrimental impact on demand for
local cars (especially on PSMC) as imports were completely halted after the introduction of new provisions. Moreover, the removal of RD will
decrease the cost of imported cars by PKR60,000-210,000, depending on the engine size (according to SBP). However, looking at the extended
delivery dates, we see this development to have a minimal impact on the medium term sales/earnings of HCAR/INDU.

CY18 started off on a robust note as Jan'18 registered highest ever industry sales (ex. 2/3 wheelers) of 30,363 units ( T 22/12 % MoM/YoY),
however, sales might lose steam going forward due to the recent negative developments. Increase in unit sales is attributed to New Year phenomena, low interest rates and disruption of imports. Cumulatively, industry sales grew by 28 % YoY to 191,373 units in 7MFY18.

Import rules back to square one: According to news reports, the federal govt. has decided to retract the requirement of r)rovidina bank encashment certificate and reinstate car import procedure as applicable before Oct'1 7. Recall that, in order to curb the influx of imported cars and discourage abuse of personal baggage, gift or residence transfer scheme, govt. amended the "Import Policy Order 201 6" requiring that the duty/taxes on imported cars shall be remitted from abroad and its money trail shall be furnished in the shape of bank encashment certificate.

After the changes are reversed, 8,000+ cars, currently stuck at customs clearance, will
likely be released into the local market. We highlight that in FY17 total used passenger car
(PC) imports stood at 38,780 units, out these 80.9% were in economy and small-low segment (below 1 300cc). I n our view, PSMC being the only player which offers 1 300cc & below vehicles (having 85% utilization as of 3QCY17) will be affected the most from rescindment of bank encashment certificate requirement.

Annulment of regulatory duty to have limited impact on local OEMS: in another development, the Sindh High Court (SHC) annulled the regulatory duties (RD) imposed on 731 items resulting in reduction in the prices of imported cars. In order to curb the swelling import bill, federal govt. imposed RD on 731 items including new and used o1800cc) imported vehicles by issuing SR0 1035 in Oct'17. The RD, which ranged between 15-80% , would have increased the prices of imported cars by approximately PKR60K for <800cc, PKR75K for 801-1000cc, PKR150K for 1001-1300cc and PKR210K for 1301-1500cc as per the SBP. In our view, the medium term impact of annulment of RD would be limited on the
local OEMS (PSMC/INDU/HCAR) given the extended delivery dates and lower demand for
+1800cc used imported cars (relative to small cars).

Auto sales hit all-time high in the month on Jan'18: The year started off on a positive note whereby all three segments (Cars/Tractors/Trucks & Buses) witnessed robust growth of 22/1 8/32% on MoM basis respectively. While on YoY basis, only Car and

Trucks & Buses segment witnessed double digit growth of 13% YoY each, respectively.
Specifically, in cars segment, HCAR displayed stellar performance on MoM basis ( T 37%)
thanks to better Civic/City sales ( 58%). While on YoY basis, PSMC ( T 24%) took the lead
owing to higher sales of Wagon R ( T 69%), Cultus ( T 50%) and Swift ( T 24%).
For Trucks & Buses segment, healthy sales from Masters ( T 174/40 % MoM/YoY) and GHN I
( T 60/32% MoM/YoY) resulted in double digit growth of 32/13% MoM/YoY basis
respectively. That said, during 7MFY18, GHNI posted noteworthy increase of 49% YoY
followed by Master ( T 45% YoY).
In the case of Tractors, AGTL ( T 122/53% MoM/YoY) outperformed on MoM/YoY basis,
while MTL witnessed drop in unit sales by ( 17/12% MoM/YoY). During 7MFY18, the
tractors segment posted whopping growth of 54% with MTL and AGTL witnessing hike of
54% and 61 % in sales respectively.
 
Apr 9, 2017
1,818
1
38
#57
ALFALAH SECURITIES
13 FEBRUARY 2018


Sales might lose steam going forward due to
the recent negative developments


The annulment of Regulatory Duty (RD) on new & used vehicles and allowance of used car imports without bank encashment certificate will take a toll on local OEMS (especially PSMC), who were already facing the brunt of PKR devaluation (PKR has devalued by 5.0% over last three months) and rising steel prices (up 8.8 % YoY).

The permission to import vehicles under previous rules (without bank encashment certificate), would have a detrimental impact on demand for local cars (especially on PSMC) as imports were completely halted after the introduction of new provisions. Moreover, the removal of RD will decrease the cost of imported cars by PKR60,000-210,000, depending on the engine size (according to SBP). However, looking at the extended delivery dates, we see this development to have a minimal impact on the medium term sales/earnings of HCAR/INDU.

CY18 started off on a robust note as Jan'18 registered highest ever industry sales (ex. 2/3 wheelers) of 30,363 units ( up 22/12% MoM/YoY), however, sales might lose steam going forward due to the recent negative developments. Increase in unit sales is attributed to New Year phenomena, low interest rates and disruption of imports. Cumulatively, industry sales grew by 28 % YoY to 191,373 units in 7MFY18.

Import rules back to square one: According to news reports, the federal govt. has decided to retract the requirement of r)rovidina bank encashment certificate and reinstate car import procedure as applicable before Oct'1 7. Recall that, in order to curb the influx of imported cars and discourage abuse of personal baggage, gift or residence transfer scheme, govt. amended the "Import Policy Order 201 6" requiring that the duty/taxes on imported cars shall be remitted from abroad and its money trail shall be furnished in the shape of bank encashment certificate.

After the changes are reversed, 8,000+ cars, currently stuck at customs clearance, will likely be released into the local market. We highlight that in FY17 total used passenger car (PC) imports stood at 38,780 units, out these 80.9% were in economy and small-low segment (below 1300cc). In our view, PSMC being the only player which offers 1 300cc & below vehicles (having 85% utilization as of 3QCY17) will be affected the most from rescindment of bank encashment certificate requirement.

Annulment of regulatory duty to have limited impact on local OEMS: in another development, the Sindh High Court (SHC) annulled the regulatory duties (RD) imposed on 731 items resulting in reduction in the prices of imported cars. In order to curb the swelling import bill, federal govt. imposed RD on 731 items including new and used o1800cc) imported vehicles by issuing SR0 1035 in Oct'17. The RD, which ranged between 15-80% , would have increased the prices of imported cars by approximately PKR60K for <800cc, PKR75K for 801-1000cc, PKR150K for 1001-1300cc and PKR210K for 1301-1500cc as per the SBP. In our view, the medium term impact of annulment of RD would be limited on the local OEMS (PSMC/INDU/HCAR) given the extended delivery dates and lower demand for +1800cc used imported cars (relative to small cars).

Auto sales hit all-time high in the month on Jan'18: The year started off on a positive note whereby all three segments (Cars/Tractors/Trucks & Buses) witnessed robust growth of 22/18/32% on MoM basis respectively. While on YoY basis, only Car and Trucks & Buses segment witnessed double digit growth of 13% YoY each, respectively. Specifically, in cars segment, HCAR displayed stellar performance on MoM basis ( up 37%)
thanks to better Civic/City sales (up 58%). While on YoY basis, PSMC (up 24%) took the lead
owing to higher sales of Wagon R ( up 69%), Cultus ( up 50%) and Swift ( up 24%).

For Trucks & Buses segment, healthy sales from Masters ( up 174/40 % MoM/YoY) and GHNI (Up 60/32% MoM/YoY) resulted in double digit growth of 32/13% MoM/YoY basis respectively. That said, during 7MFY18, GHNI posted noteworthy increase of 49% YoY followed by Master (up 45% YoY).

In the case of Tractors, AGTL (up 122/53% MoM/YoY) outperformed on MoM/YoY basis, while MTL witnessed drop in unit sales by (down 17/12% MoM/YoY). During 7MFY18, the tractors segment posted whopping growth of 54% with MTL and AGTL witnessing hike of54% and 61% in sales respectively.

SmartSelectImage_2018-02-20-23-50-39.jpg
 
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