Equity Analysis /
Pakistan

Honda Atlas: 1QMY20 results: Exchange losses lead to earnings miss

    Ahmed Raza
    Ahmed Raza

    Investment Analyst

    Intermarket Securities
    23 July 2019

    HCAR announced 1QMY20 NPAT of PKR242mn (EPS: PKR1.69), down 77%yoy/79%qoq, and below our expected EPS of PRs2.61. The major deviation came from large exchange losses (we estimate c.PKR650mn; EPS impact of PKR1.88), amid 12% PKR depreciation against US$ in 1QMY20.

    HCAR's unit sales fell by 34%yoy during Apr-Jun'19 due to 10% FED imposed on the Civic variant in mid-Mar'19 (FED structure has been revised now). Other highlights in the quarterly result include (i) gross margins of 7.6%, stable on qoq basis, despite the aforementioned PKR depreciation, (ii) other income of PKR175mn, down 61%yoy as customer advances have declined due to weak demand, and (iii) effective tax rate of 32% (application of minimum turnover tax would have resulted in a 75% effective rate and we await management clarity in this regard).

    We are Neutral on HCAR with a Mar'20 TP of PKR135/sh. In our view, management is aiming to stabilize margins (taking cue from recent stability and price hikes effective from Jul'19). However, we see risks on the volumetric front due to higher interest rates and weak purchasing power.

    Risks: (i) Further PKR depreciation against US$, (ii) slowdown in demand of luxury cars and (iii) new competition in Sedan category.