PSMC: Good things come in Government schemes
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Trifecta of a new model launch (with ~16% price bump), steady organic growth in sales (up 18% in March'17, ex-Rozgar) and now the lure of another government scheme are likely to sugar-coat PSMC's investment case. While the former two have been factored into earnings expectations, we finalize our assumption in light of price announcement, accommodating a slight increase in costs, making for a PkR1.13bn rise in NPAT (PkR13.7/sh) from the new variant as opposed to the old offering. The announ cement of Punjab Orange Cab scheme by CM Punjab with a total scheme size of 100,000 units to unemployed youth of Punjab adds additional demand for PSMC's offerings. We run a scenario analysis of the program, taking cues from the CY15-16 Rozgar scheme (50,000 units of Ravi & Bolan variants). Lastly, we posit possible earnings impact based on discount on sales and expected units sold during the current year. In this backdrop, amidst expected firming up of details surrounding any government schemes (likely in Budget FY18 disclosures by May'17), PSMC must finalize CAPEX plans and product rollouts to effectively fend off new entrants, in our view. We have an FCFE based Dec'18 TP of PkR801/sh translating into an Accumulate stance, while the stock trades at CY17/18F PE of 16.8/13.2x at current levels.
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