PSMC: Too many risks warrant caution; Sell
- We downgrade our stance on PSMC from Neutral to Sell with a revised target price of PRs432/sh (from PRs497/sh earlier), implying a downside of 6%. Major factors leading to this revision include elevated JPY against US$, increased capex and higher selling expenses in recent quarters, even as there are net positive contribution from corporate taxation measures of FY19 Budget.
- Ban on new car sales to non-filers and entry of new players in economy cars are additional risks to our thesis. The former development should not be a major concern due to structural demand, in our view, but new players are likely to change industry dynamics, testing the pricing power of incumbents.
- The scrip is currently trading at CY18/19F P/E of 9.4/9.9x (close to market), which is unjustified given the above risks, in our view. PSMC is the only assembler that has not increased its capacity recently, where possible reasons could be increasing competition in the sector and slowdown of demand, amid worsening macros.
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.
Intermarket Securities Limited (IMS) is a full service corporate brokerage firm based in Karachi, Pakistan. We service both domestic and international clients. IMS was ranked #2 Best Local Brokerage and #3 Best for Overall Country Research for 2016 by AsiaMoney.
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