PSMC: Expansion concessions alone are not enough
Pakistan's largest auto assembler has featured prominently in news flows as it angles for incentives reserved for new entrants and brownfield players, effectively using its expansion plan (US$460mn originally) as a bargaining chip for securing tariff relief
Mapping industry sales over the three major OEMs, the hefty share of PSMCs variants in overall demand plays prominently in its average sales growth and correlations with wider industry cycles, remaining less resilient and lower than premium players, INDU & HCAR
The stocks persistent slide (down 65/55% CY/FY) highlights investor qualms over the absence of a coherent long term strategy to increase product offerings, upgrade variants being a precursor to any expansion plan
We downgrade our sales, margins and earnings forecasts for PSMC, lowering our Dec'19 TP to PkR226/sh, offering upside of 30% (inclusive of 5.5% CY19 D/Y) where the stock trades at CY19/20 P/E of 4.7/6.3x. The Alto launch (March 2019) is the only catalyst in a bleak outlook, where we advocate for building positions on dips.
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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