-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.
-Despite a soft March, 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 and (2) 37% QoQ seasonally higher unit sales.
-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.
Sales dip in March ends YTD FY14 winning streak
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.
Autos set to post strong results for Jan-Mar 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.