Pak Suzuki Motor Co. (PSMC) has posted a 4QCY21 NPAT of PKR0.5bn (EPS: PKR5.94), down a sharp c.60% yoy and c.55% qoq. This takes the net profits in CY21 to PKR2.7bn (EPS: PKR32.56). The result misses our projected EPS of PKR8.12, where the variance primarily stems from lower-than-expected gross margins. For the first time since CY18, PSMC announced a final dividend, of PKR6.50/sh.
Key result highlights for 4QCY21:
Volumes increased by a sharp c.70% yoy (down c.10% qoq) to c.34,250 units in 4Q, which is largely attributed to pent-up demand for cars, following incentives announced in the FY22 Budget (price reductions). Net revenues have thus clocked in at PKR44bn, up c.65% yoy (in line with estimates).
Gross margins have declined by c.6ppt yoy to 3.6%, lower than our expectation of 4.5%, largely due to the sharp c.7% yoy PKR/USD depreciation, elevated commodity prices and surge in shipping freights, in our view. To recall, during the quarter, PSMC increased prices of all models (along with peers), by an average c.15%. We, however, expect greater positive impact on margins to come through from 2QCY22 onwards, as PSMC did not pass on the price hike on those consumers who had already paid in full (unlike other OEMs).
Finance costs have clocked in at PKR368mn, up a sharp c.40% qoq, likely due to exchange losses, in our view. Other Income has grown c.2.5x yoy, indicating a rise in cash due to higher customer advances received in the quarter, in our view. We await annual accounts for more clarity on the former.
Distribution expenses have increased by c.50% yoy, which can be attributed to the robust growth in sales, while Admin expenses doubled yoy. PSMC recorded an ETR of 31% (CY21 ETR clocked in at 29%).
Despite the decent earnings and impressive payout, this is still a weak result from PSMC, in our view, amid a sharp yoy decline in gross margins. We highlight that excluding other income, we estimate PSMC would have recorded a loss. Despite the strong sales in 2MCY22, volumes are likely to contract in the coming quarters amid monetary and fiscal tightening, in our view. Also, further potential price hikes are likely to dampen volumes as well. Gross margins are likely to remain under pressure due to increased volatility in international commodity prices and shipping freight rates (resurgence of shipping delays and constraints). We have a December 2022 TP of PKR255/sh.