Pak Suzuki: Earnings trimmed post 1H2014 review

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PSMC

  • Post review of 1H2014 detailed accounts of Pak Suzuki Motor Company (PSMC), we cut our earnings forecast for PSMC by 12/7% for 2014E/15F.
  • In tandem with our earnings revision, we trim our Target Price for PSMC to Rs300 (Rs310 earlier). That said, we maintain our ‘Buy’ rating on PSMC given cab scheme led 44% YoY expected earnings growth for 2015F.
  • PSMC trades at an undemanding 2015F P/E of 5.9x (recurring 2015F P/E of 7.8x) vis-à-vis market’s 2015F P/E of 8.6x.
  • In 2Q2014, PSMC’s earnings clocked in 34% QoQ higher at Rs7.19/share, led by (1) 10% QoQ up-tick in unit sales and (2) 105bp improvement in gross margin.
  • However, 2Q2014 earnings were down 25% YoY owing to a one-time gain on sale of property recorded last year. On a recurring basis, earnings increased by 8% YoY.

Earnings tweaked down; ‘Buy’ intact with TP of Rs300

Post review of 1H2014 detailed accounts of Pak Suzuki Motor Company (PSMC), we tweak down our earnings forecast for PSMC by 12%/7% for 2014E/2015F given lower-than-expected gross margin in 2Q2014. In tandem with our earnings revision, we trim our Target Price for PSMC to Rs300 from Rs310 previously. That said, we maintain our ‘Buy’ rating on PSMC. We expect PSMC earnings to post an impressive earnings growth of 44% YoY in 2015F on the back on Punjab government’s ‘Apna Rozgar Scheme’. Recall that PSMC has entered into an agreement with Bank of Punjab for sale of 50k units of Suzuki Bolan and Suzuki Ravi under this scheme. These vehicles will be supplied from Oct 2014 to Oct 2015. PSMC trades at an undemanding 2015F P/E of 5.9x vis-à-vis market’s 2015F P/E of 8.6x; where we estimate PSMC recurring 2015F P/E at 7.8x.

2Q2014 earnings rise 34% QoQ

In 2Q2014 PSMC’s earnings clocked in at 34% QoQ higher at Rs7.19/share, led by (1) Wagon-R launch led 10% QoQ up-tick in unit sales and (2) 105bp expansion in gross margin amid strengthening of PKR vs. USD and JPY. However, 2Q2014 earnings were down 25% YoY owing to a one-time gain on sale of property recorded last year in June. On a recurring basis, earnings increased by 8% YoY. Similarly, 1H2014 earnings declined by 11% YoY to Rs12.58/share, where recurring earnings growth clocked in at 14% YoY.

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