Equity Analysis /
Pakistan

PAKISTAN AUTOS: We cut forecasts, but remain positive; INDU top pick

    Tellimer Research
    3 April 2018
    Published byTellimer Research
    Lower margin outlook for HCAR and PSMC, INDU remains top pick. We cut our target prices for HCAR and PSMC by 18% to reflect a more cautious gross margin outlook and earlier market share loss assumptions to new entrants. HCAR’s gross margins are down 290bp yoy between April – December after the Pakistan Rupee depreciated versus the Thai Bhat and their sales mix has changed with more (lower margin due to less localisation of components) BR-V units sold. PSMC’s gross margins were flat yoy in 2017 but there is no update on the proposed new plant which should provide higher margin new models. We also assume incumbents lose share to new entrants from January 2020, earlier than our previous forecasts (July 2020 for INDU and HCAR, Jan 2023 for PSMC) and assume a further, ‘second-phase’, share loss in July 2023 (previously July 2026). INDU remains our top pick and we maintain our PKR2,715 target price (56% ETR) based on (1) highest margins due to best product mix; (2) competitive vehicle pricing compared with HCAR and PSMC; (3) consistent roll-out of the latest international standard Toyota models; and (4) larger dealership network than HCAR (45 vs 26).