Earnings Report /

Pakistan Suzuki: 3QCY22 Review - Hefty finance costs drag PSMC into losses

  • PSMC posted a 3QCY22 LPS of PKR30.25, significantly worse than our expected EPS of PKR3.18, due to higher Finance costs

  • GM remained flat YoY (up 0.8ppt QoQ) at 5.2%, as price hikes offset cost pressures from the intermittent plant closures

  • Going forward, financial performance may improve once CKD import normalize. We remain Neutral on PSMC (TP of PKR199/sh)

Intermarket Securities
26 October 2022

Pak Suzuki Motor Co. (PSMC) has posted a Net Loss of c.PKR2.5bn (LPS: PKR30.25) in 3QCY22, from a NPAT of c.PKR1.0bn (EPS: PKR12.07) in 3QCY21 and c.PKR0.4bn (EPS: PKR5.38) 2QCY22. This takes 9MCY22 net loss to c.PKR2.5bn (LPS: PKR30.46). The 3Q result is significantly worse than our expected EPS of PKR3.18, owing to a sharp rise in finance costs.   

Key result highlights:

  • Net revenue of PKR29.8bn (in line with expectations), down a sharp 41% YoY, majorly owing to a 24% YoY contraction in volumetric sales to c.16,600 units. The decline in sales is largely attributed to the CKD import curtailment measures, undertaken by the SBP. 

  • Gross margin has remained flat YoY (increased by 0.8ppt QoQ) at 5.2%, as the price hikes earlier in the year offset the decline in volumetric sales and intermittent plant closures, in our view.   

  • Finance cost rose to PKR4.8bn, largely attributed to compensations on late payments and exchange losses, in our view. Other income surged to PKR1.1bn, likely due to a significant rise in cash balances.  

  • Among other line items: i) distribution expenses declined by 32% YoY on account of lower sales, and ii) PSMC availed a tax credit to the tune of c.PKR1.0bn.

This is a very weak result from PSMC, which has plunged into losses for the second time this year, on account of hefty finance costs. Going forward, the lagged realization of the prior price increases are likely to cushion margins, but it may take a few quarters before financial performance picks up (ongoing difficulties in CKD imports). We have a Neutral stance on PSMC with a TP of PKR199/sh.