PSMC- In dire straits (AKD Daily, May 19, 2023)
AKD Daily
PSMC- In dire straits
- PSMC gross margins are expected to have around ~11% in 2QCY23 vs 9.1% in 1QCY23 mainly attributable to price hikes that a lagged impact during the period. On a longer term perspective, gross margins are expected to average around 5.8% between CY23 to CY27 vs 3.83% in past three years.
- The finance costs have shrunk PSMC equity to ~PkR7bn compared to PkR19.8bn reported in the last quarter. As per management of PSMC, the operations have shifted from an open account system to letter of credit, as a result of which company will first have to make payments in order to receive goods. It will also reduce foreign payables on which it has historically incurred exchange losses. Therefore, we expect finance cost to clock in at PkR2.9bn in the next quarter down by 77%QoQ.
- We expect demand to remain pressured amid low production coupled with high prices and restriction on auto financing (30% of total demand). Resultantly we expect 37%YoY dip in volume in CY23. On a longer term perspective, volume is expected to increase at a CAGR of 15% over our investment horizon.
- The stock is currently trading at ~3.9 times its CY24 earnings, compared to a P/E of 0.9x averaged over the past 6 years. We have a “Sell” stance on the stock with a Dec’23 Target Price of PkR118.8/sh, which offers a total return of 16.8% from the last close.
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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