Morning Call about Pak Suzuki Motor Company Limited – Arif Habib Limited

Karachi: ‘Hold’ stance with stable outlook for CY12

Arif Habib Limited has incorporated the detailed accounts of Pak Suzuki Motor Company (PSMC) into Arif Habib Limited’s financial model and changed Arif Habib Limited’s recommendation to ‘Hold’.

According to Arif Habib Limited, the share price of PSMC has appreciated by 14.5% since Mar-12. At the current price of PKR 68.7, the scrip offers an upside potential of 9% to Arif Habib Limited’s Dec-12 DCF based target price of PKR 75.0/share. The stock is currently trading at a CY12 PER of 6.3x. The Company will be discontinuing its Alto model during the year. Although  contributing ~16% to PSMC’s revenues, Arif Habib Limited expects sales to be supported in the form of higher Cultus and Mehran sales as PSMC is the only auto assembler operating in the mid-economy segment (<1000cc).

Profitability skyrockets by 276% YoY Pak Suzuki Motor Company Limited (PSMC) posted CY11 profit after tax (PAT) of PKR 794mn (EPS: PKR 9.65), depicting a phenomenal 276% YoY growth from CY10 PAT of PKR 211mn (EPS: PKR 2.57). In line with this growth in earnings, PSMC also declared a final cash dividend of PKR 2.0/share, which is a 300% jump over CY10’s DPS of PKR 0.5. The Company’s higher profitability is mainly attributable to a 17% YoY growth in volumetric sales to 92,705 units and an average 8% YoY hike in prices of its models. This appreciation in prices helped mitigate the impacts of PKR depreciation and increase in steel price during CY11. Higher other operating income (up by 8% YoY to PKR 620mn) and lower finance cost (down by 16% YoY to PKR 18mn) further supported the Company’s bottom-line.

4QCY11 a minor blemish on an outstanding year

In 4QCY11 PSMC’s PAT declined by 69% QoQ to PKR 123mn (EPS: PKR 1.49), as compared to PKR 393mn (EPS: PKR 4.77) recorded in 3QCY11. This was mainly on account of a squeeze on gross margins, which declined to 3% during the quarter under review (3QCY11: 4%) as a result of incessant PKR depreciation against JPY and lower production. PSMC recently announced another price hike of PKR 10,000-110,000 on various models, a move which will work to restore the Company’s margins to 9MCY11 levels. The Company’s top-line during the quarter contracted by 7% on a QoQ basis to PKR 14,170mn. This decline was expected due to the calendar year end phenomenon. PSMC’s bottom-line during the quarter was further dented by a 54% effective tax rate as compared to 29% in3QCY11 and 42% for the whole year.


P and L Statement (PKR million)4QCY113QCY11QoQCY11ACY10AYoY
Cost of sales13,75914,663-6%50,84941,63922%
Gross profit411635-35%1,8691,00486%
Selling and Admin expenses27822921%1,00083420%
Other income156193-19%6205758%
Finance cost5420%1821-16%
Profit before taxation265554-52%1,365668104%
Profit after taxation123393-69%794211276%
Earning per share (PKR)1.494.779.652.57


Source: Company accounts and AHL Research

Revenues jump by 24% YoY

Net revenues of the company registered an increase of 24% YoY to PKR 52,719mn compared to PKR 42,643mn in the corresponding period last year. This healthy rise in top line was due to an average 8% YoY hike in prices of various models, along with a 17% YoY growth in volumetric sales to 92,705 units. Although the Punjab Government’s Yellow Cab Scheme augmented sales by 6,870 units in CY11, the growth in top-line was also supported by an uptick in sales of Ravi, Swift, Alto and Cultus which grew by 107%, 53%, 12% and 2% respectively, and is a manifestation of the Company’s diverse product mix.

Margins improve by 119 bps

The Company witnessed its gross margins improve to 3.55% in CY11 from 2.35% in the corresponding period last year. Incremental price hikes of ~8% on all models during the year along with the impact of higher localization levels and increasing economies of scale owing to higher production are the primary reasons behind this improvement, which offset the ~ 13% YoY PKR depreciation against JPY and ~2% YoY increase in steel prices. As of Feb-12, this trend in PKR depreciation has reversed, and Arif Habib Limited expects it to stabilize at the current level of PKR 0.91/JPY.

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