Pakistan Auto: Increased competition = increased CAPEX, (AKD Daily, Nov 19, 2018)
- An analysis of updated financial accounts for auto OEMs reveals a clear upswing in industry CAPEX with the last twelve month total outlay reaching PkR7.6bn with PSMC/INDU/HCAR contributing 46/38/16%.
- Looking at CAPEX outlays for the three major OEMS, we find that INDU and HCAR maintain higher investment levels per model sold (reflected in frequent model launches, better features), while PSMC has recently caught up, with CY18 CAPEX/unit hitting levels seen in HCAR (PkR28.4k/unit).
- On the other hand, CAPEX is reflected in poor free cash flows, where a historic analysis of cash flows show that variations in net working capital (movement of current assets and liabilities) are a greater threat, where pressures from the same forced PSMC to acquire ST borrowing to fill the gap.
- We believe the wheels are in motion for introduction of a new variant (most likely the Alto) to replace the Mehran, with investment in Techno Glass (subsidiary to manufacture windshields) offering additional catalysts. Our Dec'19 TP of PkR313/sh (risk free rate/risk premium of 13/6%) offers a total return of 28% to last close, while the stock trades at a relatively inexpensive CY19 P/E of 5.1x
Pak Suzuki Motor is engaged in assembling, progressive manufacturing and marketing of Suzuki cars, pickups, vans, and 4X4 vehicles. Co.'s product models include Baleno, Margalla, Mehran, Kyber, Ravi Pickup, Bolan Van and Potohar Jeep.
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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