EUR 4.62 For Business Accounts Only

PSMC: Pricing power & weaker JPY keep margins intact; Neutral

• ​​We maintain our Neutral stance on PSMC, while moderately lifting our estimates by incorporating the recent price increase of PkR20,000 of Wagon-R. Our new EPS estimates for CY17/18F are PkR50.93/59.01 (up 5%) where our new target price is PkR630/sh (up 6%); the stock offers a dividend yield of 2.4%
  
• Impressive sales growth amid conducive environment for Auto sales has given immense pricing power to local Auto OEMs where PSMC has taken a second price increase in last six months. This coupled with a relatively weaker JPY will keep margins intact despite 56% FYTD increase in steel prices.
  
• We think PSMC has greater ammunition against upcoming competition from new entrants given higher localization levels resulting and diversified product mix. We have not incorporated the impact of any expansion, awaiting further clarity and granular details from management.