JS Securities Limited – JS Research (14-01-2020)

Karachi, January 14, 2020 (PPI-OT): CY19 ends as it should; with another YoY decline in Dec-2019

Auto sales posted yet another decline in Dec-2019, dropping by 38% YoY to 12,103 units, compared to 19,445 units in Dec-2018.

PSMC (-26% YoY) once again fared better than the other two Japanese assemblers, i.e. Indus Motors (INDU, -56% YoY) and Honda Atlas Cars (HCAR, -58% YoY).

Millat Tractors (MTL) was the outperformer this month with 175% YoY jump in volumes, which was likely partially due to a low base effect, given the plant shutdown last year at this time.

Volumes are expected to remain muted in CY20 given the prevailing high prices. One should not be swayed by the MoM increase that will most likely surface in Jan-2020, as it always does due to the New Year factor, and hence should remain Underweight in the passenger car sector.

Auto sales posted yet another decline in Dec-2019, dropping by 38% YoY to 12,103 units, compared to 19,445 units in Dec-2018. To recap, 2019 was particularly rough on the auto sector, following bouts of devaluation, hikes in interest rates and imposition of duties, which compelled the assemblers to raise prices and suffer a massive dent to volumes. 2HCY2019 was especially brutal as it began with the budget-imposed duties on passenger cars (leading to the highest price increase), resulting in a 44% YoY plunge in auto volumes during that period. Sequentially, volumes recovered by 23% MoM, which was solely attributable to the 49% MoM increase in Pak Suzuki’s (PSMC) volumes.

PSMC (-26% YoY) once again fared better than the other two Japanese assemblers, i.e. Indus Motors (INDU, -56% YoY) and Honda Atlas Cars (HCAR, – 58% YoY). The Suzuki Alto continues to be the saving grace for PSMC with ~3k units sold during the month, whereas its LCVs (Ravi and Bolan) also posted a strong recovery this month (whether there were one-offs is something that remains to be seen). HCAR saw monthly sales shrink to a 5-year low in Dec- 2019, whereas INDU also struggled during the month, particularly the Hilux brand (down 83% YoY) with 3-year low sales.

Given such low volumes persisting for assemblers, it is therefore slightly surprising that they recently announced price increases yet again (from Jan-2020). In particular, INDU and HCAR who still enjoy comfortable margins, whereas one could justify PSMC’s price increases, considering perilously low margins the assembler is facing at the moment. Meanwhile, Millat Tractors (MTL) was the outperformer this month with 175% YoY jump in volumes, which was likely partially due to a low base effect, given the plant shutdown last year at this time.

Going forward, volumes are expected to remain muted in CY20 given the high prices prevalent in the sector. One should not be swayed by the MoM increase that will most likely surface in Jan-2020, as it always does due to the New Year factor, and hence should remain Underweight in the passenger car sector. However, recent events such as the axle load regime (transporters’ strike has also ended) might indicate some positivity for the volumes of public sector transport companies such as Ghandhara Industries (GHNI) and Ghandhara Nissan (GHNL).

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