IGI Securities Limited – Day Break
Web Desk
Karachi, January 16, 2018 (PPI-OT): Automobile Assembler – Earnings revised on price hike; INDU stands out amongst its peers
Following PKR deprecation against USD by 5% in Dec-17, auto manufacturers have increased the prices of their units to reflect rise in imported costs
For INDU, the price hike during the fiscal year will result in earnings impact of +4% (EPS: PKR 184.69) from our previous estimate (EPS: PKR 178.13) for FY18E
Similarly, for HCAR the increase in price will have an upward revision of +14% for the next three years
For PSMC the price increase witnessed during the start of CY18 was almost in line with our base assumption having price hike of 2-3%/unit. However, we have slightly revised upwards our earnings for PSMC on average by +4% for the next three years
We have a ‘BUY’ call on INDU with Dec-18 based target price of PKR 2,292/share, offering +31% upside from its last closing. The company is currently trading at FY18E P/E of 9.5 x and offers a dividend yield of 7.3%
Following PKR deprecation against USD by 5% in Dec-17, auto manufacturers have increased the prices of their units to reflect rise in imported costs. INDU, HCAR and PSMC have increased their prices on average by 4%, 3% and 2% respectively. We have revised earnings estimates for our coverage companies (INDU, PSMC and HCAR) after incorporating price increase across different units. Based on the revised earnings we see INDU and HCAR to be beneficial while PSMC, having limited price pass-over capacity to have minimal impact.
Increase in prices resulting in earnings impact of +4% for FY18; valuation up by +4%
INDU on average has increased its prices by 3%/unit for Corolla variants, while 3-5%/unit hike was witnessed in Hilux variants. To recall, INDU increased the prices last year for its new face-lift model, while later in the beginning of 1HFY18, a price hike was further seen following slight PKR depreciation. The recent price hike will result in earnings impact of +4% (EPS: PKR 184.69) from our previous estimate (EPS: PKR 178.13) for FY18E. Similarly, we have tweaked our earnings projections based on the revised prices, which will result in upward revision of +10.6% on average for the next three years, thereby increasing our valuation by +4% to PKR 2,292/share.
Price increase tweaking earnings projections; valuation to uphold BUY call
HCAR increased the prices of Civic and City variants on average by 2%-3%/ unit. For the current FY18E, our earnings estimates will revise slightly by 0.5% to PKR 56.95/share from PKR 56.68/share owing to price impact visible in 4QFY18. However, going forward our earnings forecast will see upward revision of +14% on average for the next three years. Our revised target price will have an increase of +16% to PKR622.2/share from the previous target price of PKR 536.4/share.
Price hike almost in-line with our estimates; valuation revised slightly
For PSMC, the price increase witnessed during the start of CY18 was almost in line with our base assumption having price hike of 2-3%/unit. However, we have slightly revised upwards our earnings for PSMC on average by +4% for the next three years. Our target price comes at around PKR 499.6/share, up by +2% from the last target price of PKR 489.6/share.
Recommendation:
We have a ‘BUY’ call on INDU with Dec-18 based target price of PKR 2,292/share, offering +31% upside from its last closing. The company is currently trading at FY18E P/E of 9.5 x and offers a dividend yield of 7.3%.
