PSMC: Only taxi scheme can justify current valuations
- We raise our base case earnings estimate for PSMC for CY17/18F by 27/18% to PkR64.51/69.52. We incorporate (i) above expected 1QCY17 result (EPS: PkR15.88), (ii) above expected Wagon-R and Mehran sales, (iii) change in JPY assumptions, (iv) decline in other income, (v) CAPEX on current and upcoming variant replacements and (vi) decline in localization level due to new models. Our stance on the stock is Under Review given lack of clarity with regards to a fresh taxi scheme.
- PSMC has shelved the US$460mn investment plan due to lack of incentives by GoP, however the possibility of a future expansion cannot be ruled out. The stock has also been under limelight amid news flow of another taxi scheme; it has rallied 25% in the last 15 sessions since the news surfaced.
- The recent depreciation in JPY and display of immense pricing power by the company has resulted in 5ppts margin accretion in last two quarters, but we believe decline in localization levels poses a risk to margins in the medium term. The stock currently trades at CY17F P/E of 13.32x on base case estimates, which implies a 15% premium to the market where we believe a taxi scheme has largely been priced in at current levels.
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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