AKD Securities Limited – Auto Sector: A perfect start to the New year!

Karachi, February 12, 2015 (PPI-OT): Led by spectacular monthly off take performance by HCAR and INDU that sold 3,221 units (up 4.8xMoM/24%YoY) and 6,415 units (up 57%MoM/61%YoY) respectively, 2015 kicked off on a high note for the auto industry. In this regard, the industry witnessed record high sales of 17,709 units (cars+LCVs) in the month of Jan’15, taking 7MFY15 sales figure to 85,135 units vs. 75,162 units in 7MFY14.

While the New Year phenomenon has played its part in driving up volumes, AKD Securities Limited believes new model launches further carried forward the momentum. In tandem, tractor sales also continued their upward journey selling 3,540 units in Jan’15 (+602%YoY/+48%MoM) taking 7MFY15 volumes higher by 29%YoY to 24,397 units. Having outperformed the market by 9.4% CYTD, AKD Securities Limited feels Auto sector has little to offer going forward where AKD Securities Limited highlights the auto policy as a key event that can dictate sector’s price performance.

Company wise breakup:

HCAR- couldn’t have been better: With regards to sales volume, Jan’15 turned to be the best ever month for HCAR where the company sold 3,221 units in the month; up 24%YoY. Amongst the variants, City remained the star performer for HCAR with the highest ever sales volume of 2,103 units while Civic sales jumped up to 1,118 units. Cumulatively, HCAR registered sales volume of 11,799 units in 7MFY15, down 6.3%YoY with 4,144 units of Civic and 7,655 units of City sold.

INDU- highest ever monthly sales: In line with HCAR, INDU also hit its highest ever monthly sales figure of 6,415 units (+57%MoM/+61%YoY). Led by phenomenal sales volume of 5,864 units of its flagship product, Corolla, the company’s 7MFY15 volumes went up by a massive 53%YoY to 29,298 units. Amongst others, Hilux and Fortuner also picked up pace, growing by 147%MoM and 238%MoM to 480 units and 71 units, respectively.

While the numbers show an encouraging trend, AKD Securities Limited believes the positives with respect to margin expansion and volumetric uptick on account of new models have largely been priced in. In this regard, the stock trades at a forward PE multiple of 11.3x where AKD Securities Limited’s TP of PkR1,102/share offers limited upside potential of 7.1%.

PSMC- volumes up 28%YoY in Jan’15: PSMC recorded sales volumes of 7,987 units in Jan’15, up by 28%MoM/13%YoY with 7MFY15 total sales volume of 43,688 units. Apart from Cultus (-3.6%MoM), every other variant for PSMC witnessed strong growth in the period under review, Mehran (+66%MoM to 3,467 units), Swift (+56%MoM to 313 units) and Wagon R (+144%MoM to 475 units).

Going forward, AKD Securities Limited expects volumes for the company to remain strong as the Punjab taxi scheme kicks in. PSMC has gained 19.7% CYTD and outperformed the broader market by 13.3% in the same period. At current price the stock trades at CY16 PE multiple of 11.1x where AKD Securities Limited’s TP of PkR450/share implies a Neutral stance. .

Tractors continue to shine: The tractor industry recorded sales of 24,397 units (+29%YoY) in 7MFY15 on account of reduction in GST in Federal Budget FY15 to 10%. In Jan’15 alone, the industry recorded sales volume of 3,540 units (+48%MoM/602%YoY) due to abnormally lower sales in Jan’14. Company wise breakup reveal, MTL sold 2,154 units (+38%MoM) in the month whereas AGTL recorded sales volume of 1,310 units (+72%MoM) culminating into 7MFY15 sales volume of 14,965 units and 9,023 units, respectively.

Investment Perspective: The auto sector has gained 9.4% CYTD outperforming KSE-100 Index by 3.0% in the same period with stock prices at their all-time high levels. While the industry’s volumetric uptick is encouraging, AKD Securities Limited sees limited upside triggers for the auto sector in general. Moreover, any development on the Auto Policy front can further dictate price performance accordingly. At current levels, AKD Securities Limited an Accumulates stance on INDU with a TP of PkR1,102/sh wheras PSMC at a TP of PkR450/sh implies a Neutral stance.

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