Earnings Report /
Pakistan

Honda Atlas: MY22 review – earnings miss on higher opex

  • HCAR announced 4QMY22 EPS of PKR1.38. This takes MY22 EPS of PKR17.58, alongside a final DPS of PKR7.0

  • GMs clocked in at 4.5% up from 2.7% last quarter, as a result of the price increase in November

  • Going forward, sales and margins are likely to be under pressure amid monetary and fiscal tightening, in our view

Abdul Ghani Mianoor
Intermarket Securities
26 May 2022

HCAR has reported a NPAT of PKR197mn (EPS: PKR1.38) for 4QMY22, down a sharp 78% yoy and 56% qoq. This takes MY22 EPS to PKR17.58, up 40% yoy. This is quite a weak result from HCAR, where the deviation from our projected EPS of PKR2.82 is due to higher-than-expected Opex. HCAR also announced a final DPS of PKR7.0 vs. our expected DPS of PKR6.50.

4QMY22 result highlights include:

  • Revenues of PKR31bn (in line with estimates), up 35% yoy due to a 30% yoy increase in volumes to c 10,500 units (flat qoq). The rise in volumes is largely due to the ramping up of City deliveries and phasing out of the old Civic. Towards the end of March, HCAR rolled out deliveries for the new Civic.

  • Gross margins at 4.5% have come in higher than our expectations, likely due to (i) price increase in November and (ii) new Civic launch may have lifted margins, albeit slightly, in our view. On a yoy basis, margins are down 0.7ppt due to the surge in raw material and freight costs, coupled with sharp PKR depreciation.

  • Distribution expenses nearly doubled yoy on account of greater volumetric sales and promotions with regards to new Civic launch, in our view. Admin expenses increased by 14% yoy. HCAR likely booked turnover tax in 4Q of PKR388mn (PKR1.27/sh after-tax impact).

  • Financial charges clocked in at PKR60mn, largely due to compensation on late deliveries, in our view. Other income rose by 20% yoy likely due to a rise in customer advances (increase in cash balances). Other expenses clocked in at PKR202mn.

We expect the sales of HCAR to remain relatively flat in the coming quarters, where the new model effect (on account of new Civic launch) is likely to be countered by supply chain constraints. According to channel checks, HCAR is presently focusing on rolling out orders of the new City due to a large order book and part shortages related to the Civic. In the coming quarter however, margins are likely to be under pressure despite the multiple price increases (effective from July onwards). Also, the recent revision in PRs by the SBP, rise in policy rate and CBU import ban is likely to dampen sales in MY23, in our view. We have a March 2023 TP of PKR235/sh for HCAR but will look to revisit our estimates following the availability of annual accounts.