AKD Securities Limited Equity Research – Daily Report (06-12-2019)

Karachi, December 06, 2019 (PPI-OT): PSMC: Major developments keep sentiment afloat

Continuing the to-and-fro between the GoP and PSMC sponsors, the company (as expected) is reportedly proceeding with planned capacity expansions, despite receiving no incentives from the GoP.

Additionally, news flow suggests the launch of an upgraded Swift is in the works, where we showcase earnings sensitivities from a spike in sales and price tags, setting up our base case expectations of 15-18% growth in NPAT from a potential new model launch with accompanying price/sales hike of ~7/4% from current levels.

IN this backdrop we assess the benefits from capacity expansions on the OEMs profitability, erring on the side of caution as the stock seems to have decoupled from fundamentals, with losses making the case for an expansion largely mute, in our view.

While we retain a Sell call on the stock, our forecasts may be amended following guidance on new model launches in the premium or LCV segment, while the capital stack for any planned expansion (contribution from internal cash flows or equity) could sway our estimates significantly.

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