Earnings Report /
Pakistan

Pakistan Suzuki: 1QCY22 review – longer lead times resulted in a loss

  • PSMC posted a 1QCY22 LPS of PKR5.59 (first LPS since 3QCY20), missing our expectations, due to higher Finance costs

  • GMs declined by c.3ppt yoy amid elevated commodity prices, sharp PKR depreciation and lack of price increase impact

  • Sales are likely to contract in the coming quarters, in our view; we have a December 2022 TP of PKR227/sh

Abdul Ghani Mianoor
Intermarket Securities
26 April 2022

Pak Suzuki Motor Co. (PSMC) has posted a 1QCY22 Net loss of c.PKR0.5bn (LPS: PKR5.59), down from a NPAT of PKR0.8bn (EPS: PKR9.45) in SPLY and down from an EPS of PKR5.93 in 4QCY21. The result misses our projected EPS of PKR5.95, where the variance primarily stems from higher-than-expected finance costs and lower other income. This is the first quarterly loss since 3QCY20. 

Key result highlights for 1QCY22:

  • Volumes increased by a sharp c.30% yoy (down c.5% qoq) to c.36,700 units in 1Q, which is largely attributed to preemptive buying of cars prior to the price increase in November and large order backlog (healthy demand). Net revenues have thus clocked in at PKR47.7bn, up c.30% yoy (in line with estimates).

  • Gross margins have declined by c.3ppt yoy to 2.8%, broadly in line with our expectations. The yoy decline in margins is largely due to the sharp c.10% yoy PKR/USD depreciation, elevated commodity prices and surge in shipping freights, compounded with lagged price increases. To recall, PSMC previously increased prices in mid-November, however, the impact of the price increase will likely be seen from 2QCY22. The most recent price increase (March), is likely to be seen in 3QCY22, in our view.  To recall, PSMC did not pass on the price hike to those consumers who had already paid in full (unlike peer OEMs).  

  • Finance costs have clocked in at PKR1.0bn, up a sharp c.4.0x yoy, largely due to higher compensations on late payments, in our view. Other Income has decreased by c.15% yoy likely due to a fall in cash balances, in our view. We await quarterly accounts for more clarity on the latter.   

  • Distribution expenses have increased by 3% yoy, which can be attributed to the growth in sales, while Admin expenses increased by 11% yoy. PSMC recorded a tax reversal of PKR188mn (the first time since 3QCY20). 

Despite the impressive revenue and volumes growth, this is a weak result from PSMC, which has found its way back into losses, owing to thinning margins and opex. Going forward, the price increases are likely to cushion margins under elevated cost pressures, in our view. Volumes on the other hand are likely to remain healthy in the near-term (until early 3Q), before contracting following the monetary and fiscal tightening, in our view. We have a December 2023 TP of PKR227/sh.