-Auto sales declined by 8% YoY and 4% MoM in March 2014, ending the run of YoY higher sales every month YTD FY14. Indus Motor Company (INDU) fared better than others, with 2% YoY and 16% MoM higher sales.
-In 9MFY14 industry sales clocked in 4% YoY higher at 100.2k units, where Honda Car (HCAR) and INDU sales ticked up by 14% YoY and 3% YoY respectively.
-We expect INDU’s 3QFY14 EPS to clock in 86% YoY and 196% QoQ higher at Rs17.8, while we anticipate Pak Suzuki (PSMC) to register 34% YoY and 51% QoQ higher 1Q2014 EPS of Rs5.9.
-Our top pick in the sector remains PSMC with a Target Price of Rs240. Meanwhile we downgrade INDU to ‘Hold’ from ‘Buy’ following the recent run up in its stock price.
The 8% YoY (and 4% MoM) decline in auto sales in March 2014 brought to an end YTD FY14 winning streak for the industry where pre-March, unit sales clocked in YoY higher every month. Indus Motor Company (INDU) fared better than others, with sales inching up by 2% YoY and 16% MoM. Meanwhile sales for Honda Car (HCAR) and Pak Suzuki Motor Company (PSMC) fell by 12% YoY and 16% YoY. Withstanding decline in March sales, auto sales in 9MFY14 clocked in 4% YoY higher at 100.2k units, where HCAR and INDU sales ticked up by 14% YoY and 3% YoY while PSMC sales remained similar to last year. Looking ahead, we raise our FY14E-FY15F industry sales target by 3-6% to 150k-170k units on the back of expected launch of Wagon R by PSMC on April 18, 2014.
We expect a strong set of results for the Jan-Mar 2014 from the auto sector on the back of (1) sharp appreciation in PKR vis-à-vis USD and JPY and (2) seasonally driven 37% QoQ higher unit sales in 3QFY14. We anticipates the industry’s profits to grow by 69% YoY and 137% QoQ, where we expect (1) INDU’s 3QFY14 EPS to clock in at Rs17.8 (+86% YoY & 196% QoQ; taking 9MFY14 EPS to Rs35.0, +59% YoY) and (2) PSMC’s 1Q2014 EPS to grow by 34% YoY and 51% QoQ to Rs5.9.
PSMC remains our preferred pick in Pak Auto space
We prefer PSMC (Target Price: Rs240) in the Pak Auto space as we believe the market is yet to fully price in the anticipated earnings accretion on the back of expected launch of Wagor R on April 18, 2014. PSMC trades at 7.1x 2014E PE (24% discount to KSE). Meanwhile, we downgrade INDU (Target Price: Rs420) one notch to ‘Hold’ from ‘Buy’ following the recent run up in its stock price.