KASB Automobile Assembler

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Dear Clients,

KASB Automobile Assembler Universe’s profitability is set to expand by 4.3x Y/Y after reporting the best quarter in automotive sales in the past 7 quarters. During Jan’21-Mar’21, the reported OEMs cumulatively sold 54,718 units (ex-KIA) on the back of robust demand. On a sequential basis, the sector saw a 29% Q/Q uplift in demand. On a Y/Y basis, sales are up by 76%. We note expansion in margins courtesy of stronger PKR against the dollar and JPY depreciation as another keynote from upcoming results.

– In the upcoming quarter results, Indus Motor Company (INDU) is likely to deliver a solid revenue jump for the quarter to clock in at PkR50.7bn as the success of Yaris propelled its best quarterly sales in the past 2 years. Along with Yaris, Corolla Altis and Fortuner sales have registered a robust increase. These are high-margin variants of the company. We anticipate the company to post gross margins at 11.1% for the quarter stemming from steady pricing and PKR appreciation as well as a better sales mix. Improving order book is expected to elevate cash balances further for the company with an expected income contribution of PkR1.4bn leading the EBITDA to PkR6.8bn. Overall profitability is expected to reside at PkR4.3bn (up by 60% Y/Y and 45% Q/Q) translating to an EPS of PkR54.5/sh with a dividend announcement of PkR32.5/sh. This takes earnings for 9MFY21 to PkR115.6/sh, up by 82% Y/Y.

– We anticipate Honda Atlas Cars (HCAR) to mimic the sector profitability trend after seeing strong demand for its vehicles. We project the revenues for the quarter to stand at PkR23.1bn, up by 31% Q/Q as a result of a 29% increase in volumes having sold 8,032 units. As the bulk of order flow remains concentrated towards Civic followed by City, we expect the company to deliver margins at 7.8% for the period up by ~126bps compared to Dec-20. BRV remained a laggard with just 1,174 units sold. A notable improvement in cash balances is likely to lift other income for the quarter to PkR317mn. This takes profits after tax for the period to PkR1.2bn (EPS of PkR8.4/sh) for the quarter. For MY21, the company is expected to record profits of PkR2.1bn (EPS of PkR14.6). Along with the result, we expect the company to announce dividends of PkR4/sh.

– Pak Suzuki Motor Company (PSMC) is poised to exhibit strong profitability of PkR1.9n (EPS of PkR22.9/sh) for the quarter. Our estimates incorporate better margins on the back of PKR appreciation. The company saw a 2x Y/Y rise in vehicle sales to 28,077 units for the quarter leading revenues to stand at PkR36.3bn.  We anticipate the company to record gross margins at 11.0% owing to a mix of better utilization levels, improved pricing, and PKR appreciation. We further note a decrease in finance cost and curtailed expenses to drive the company bottom-line. Resultantly, we anticipate sturdy profitability of PkR22.9/sh kicking off CY21 on a strong note.

– We contend for value in the auto sector that is yet to apprise demand for vehicles as a ripple effect of low-interest rate and new model launches along with healthy order book. We have an Outperform stance on the sector that trades at FY21 P/E of 7.0x.

KASB Research

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