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JS Securities Limited – Morning Briefing

Karachi, January 04, 2018 (PPI-OT): Autos: Sales likely to grow by 17% YoY in Dec-2017

We preview auto sales for Dec-2017, where we expect volumes (Passenger Cars + LCVs) to grow by 17% YoY to 18,760 units.

We expect Honda Atlas Cars (HCAR) to outperform sector growth, with 32% YoY rise in unit sales during the month owing to BR-V sales.

We expect Pak Suzuki Motor Company (PSMC) to record another robust month of sales with 24% YoY growth, led by Wagon-R and Mehran sales.

Indus Motor Company (INDU) is likely to exhibit a sluggish month with 3% YoY decline in volumes, where Fortuner sales are expected to provide cushion to company’s volumes.

We retain INDU as our top pick in JS Auto Universe, with a Target Price of Rs2,254, an upside of 31% from current price levels.

Auto sales likely to grow by 17% YoY in Dec-17

We preview auto industry sales for Dec-2017, where we anticipate total Cars and Light Commercial Vehicle (LCV) sales to grow by ~17% YoY during the month to 18,760 units, as compared to 16,041 units in the same period last year. We expect Honda Atlas Cars (HCAR) to exhibit the highest growth (up 32% YoY), supported by its BR-V variant sales. We also expect Pak Suzuki Motor Company (PSMC) to put in a good performance with 24% YoY growth expected. Strong demand seen in Wagon-R (online taxi app factor) and Mehran sales is likely to persist during the month.

Conversely, we anticipate Indus Motor Company (INDU) to record a modest decline of 3% YoY as Corolla sales are likely to face a minor setback during the month, owing to the company’s recently introduced policy of weeding out ‘profiteers’ and selling cars to genuine buyers in order to reduce delivery lead times. That said, expected 13x YoY growth in Fortuner sales is likely to offset decline in Corolla sales. Sequentially, we expect industry’s volumes to drop by 11% MoM, because of seasonality factor seen in the auto industry, where customers hold off their purchases until the commencement of the New Year.

Maintain INDU as our Top Pick among Autos

We reiterate INDU as our top pick in JS Auto Universe, with a Target Price of Rs2,254, offering 31% upside from last closing. The stock currently trades at a FY18E P/E of 9.3x, offering a D/Y of 7%. Key risks to our thesis include (1) higher- than-expected Pak Rupee depreciation against US$ and (2) higher-than-expected increase in steel prices.

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