INDU: Defensive on all fronts
- With consumer durable spend suffering from a range of macro and confidence shattering factors, we highlight the relative value proposition on offer with our top pick in the auto assembly space, INDU, where medium term triggers (launch of the Vios to replace 1,300CC Corolla) have the potential to spur price performance.
- Despite these catalysts, strains can be seen on INDU’s balance sheet over the near term where it has depleted its ST investments (down to PkR415.4/sh as of March’19 from PkR700.1/sh in June’18), in effect hunkering down in a down cycle to withstand working capital challenges and CAPEX outflows.
- Consequently, channel checks with dealers indicate a ‘trading-down effect’ with lower end variants exhibiting higher demand expected to fuel demand for the launch of the Vios (1,300CC variant), supporting INDU’s LT GM assumption of ~12% indicating significant pricing power, with brand premium remaining strong.
- For 4QFY19 EPS of PkR31.3/sh is expected, moving -27%QoQ/-41%YoY underpinned by hindered margins, from PkR weakness, with other income providing some cushion for an otherwise tepid earnings picture. Accompanying the results a final year DPS of PkR22.5/sh is expected, taking full year DPS to 110/sh.
- Playing a strong sales strategy (targeted discounting, offer premium features at low price) to defend market share while launching brand extensions backed by augmented capacity, we highlight the defensive moats INDU holds re-iterating our BUY call on the stock, with a June’20 TP of PkR1,452/sh (total return of 42% inclusive of FY20 D/Y of 10.8%).
AKD Research
AKD Securities Ltd. is one of the leading securities firm in Pakistan, providing a comprehensive range of investor focused services, including equity brokerage, economic and securities research, investment banking and financial advisory services. AKD Securities accounts for more than 6% of the average daily value of the Karachi Stock Exchange. AKD Securities was the first brokerage house to launch an online trading platform in Pakistan in November 2002 and now has the largest market share with over 6000 customers. This has helped diversify and expand the retail investor base in the country and ushered in a whole new universe of investors to the stock market.
AKD Securities Ltd. caters to a diversified group of domestic and international institutional investors, high net worth individuals and upscale retail clients, including expatriate Pakistanis. With high quality research, unparalleled execution and distribution capability for both regular and large block trades, AKD Securities Ltd. has earned an outstanding reputation in the Pakistani securities industry.Outside of commercial banks, AKD Securities Ltd. is one of the biggest capital market firms in the country. AKD Securities is the leader in raising and providing risk capital in underwriting, market making and mergers and acquisitions in Pakistan. Good corporate governance and professionalism are emphasized throughout the firm and AKD Securities Ltd. is amongst the very few companies to have introduced a firm-wide comprehensive CODE of ETHICS, overseen by an independent compliance manager.Ultimately, our success is based on the quality of service we provide to our customers and the trust and confidence reposed in us by them. Our focus, therefore, remains on customer satisfaction at all levels in the company.
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