AKD Securities Limited Equity Research – Daily Report

Karachi, October 11, 2018 (PPI-OT): Pakistan Autos: Slow and steady is the new norm

Monthly automobile industry sales data is out, with a total of 19,934 units being sold (+8%MoM/+2%YoY) of which 16,957 cars (+10%MoM/+8%YoY), 2,388 LCVs (+5%MoM/-24%YoY), 539 Trucks (-12%MoM/-28%YoY) and 5,818 tractors (+44%MoM/-2%YoY) made up total offtake.

In the passenger car segment, total sales of 16,957 (+10%MoM/+8%YoY) consist of 3,539, 800CC and below segment (0%MoM/-33%YoY), 4,455 1,000CC segment (+16%MoM/+41%YoY) and 8,963 1300CC and above segment (+12%MoM/+25%YoY) sales respectively.

Cumulative 9MCY18 total industry sales of 200,234 units (+9.3%YoY) pushed by passenger car sales growth of 9.3%YoY (164,575 units sold), where HCAR (40,168 vehicles sold up 14.1%YoY), PSMC (104,324 vehicles up 10.6%YoY), INDU (48,353 units sold up 4.0%YoY) are below 5YR historic CAGRs (HCAR/PSMC/INDU 9MFY13-18 CAGR of 16/12/9%) signifying a general slowdown vs. long term growth rates

Citing wider industry headwinds including the flat-lining of sales growth in the price-sensitive 800cc and below segment coupled with recent PkR weakness against the Greenback (~7% in Oct’18) nudging OEMs for a further round of price hikes (4th round this year with prices rising 7-11% CYTD already), we highlight the demand outlook to be on a contractionary path.

Re-iterating our cautionary outlook on the sector, the recent sell-off in the space has opened up valuations (FY19/20 P/Es of 5.4/5.7x) where INDU remains our top pick in the coverage universe with attractive D/Ys (FY19/20 D/Ys of 11.0/10.6%) and an unencumbered balance sheet (cash and short term investments of PkR57.2bn or PkR786/sh) underpinning our BUY call on the stock.