Earnings Report /
Pakistan

Pakistan Suzuki: 4QCY19 review: In-line result exclusive of tax credit

  • PSMC posted 4QCY19 net loss of PKR234mn (LPS PKR2.84). This brings CY19 LPS to PKR35.49 vs. EPS of PKR15.77 in CY18

  • Volumes declined by 3%qoq and 30%yoy in 4QCY19. Net sales of PKR25,425mn came in slightly higher than expected

  • Finance cost rose 2.6x qoq and a staggering 4.2x yoy in 4QCY19. This is due to an increase in short-term borrowings

Intermarket Securities
20 March 2020

PSMC posted 4QCY19 net loss of PKR234mn (LPS PKR2.84); however they posted a net loss (before tax credit) of PKR1,188mn (LPS: PKR14.43), which was in line with our projected loss of PKR1,168mn (LPS: PKR14.20). This brings CY19 LPS to PKR35.49 compared to an EPS of PKR15.77 in CY18. 

4Q19 key result highlights:       

  • Volumes declined by 3%qoq and 30%yoy in 4QCY19. Net sales of PKR25,425mn came in slightly higher than expected, potentially due to better-than-expected motorcycle sales. However, volumes saw an increase in December, due to the announced price hikes in the month of January
  • Gross margins improved to 3% from -1% in 3Q, which was due to price increases during 4Q and relatively stable exchange rate. We expect margins to improve slightly in the coming quarters due to the price hikes in January (4-5%) but this will be checked by recent PKR slip.
  • Distribution expenses declined by 27% qoq (47% yoy) while admin expenses rose 17% qoq in 4Q.
  • Finance cost rose 2.6x qoq and a staggering 4.2x yoy in 4QCY19. This is due to an increase in short-term borrowings due to declining customer advances and inventory pile-up, which depleted cash balance. Recall that PSMC announced non-production days during January to rationalize inventory.
  • PSMC booked a tax reversal of PKR953mn. To recall, PSMC recorded reversals in the previous two quarters as well. It has been booking turnover tax since 3QCY18 (which has a carry forward period of five years) and it appears that the company is expecting a higher profitability going forward, in our view.

Key Highlights of CY19: Volume sales fell 19% yoy despite launch of new Alto (replacing Mehran) but offset by price increases. GP margins dwindled to 1.7% vs 5.9% last year amid PKR depreciation and lower utilization levels. Other expenses declined significantly due to negligible WWF expense, while other income fell 61%yoy due to lower cash balances in CY19. PSMC also booked a tax credit of PKR2,031mn to curtail its losses.