BMA Research - Investor Guide Pakistan

 Pakistan Automobile INDU a drag on Auto sales Monday July 14, 2014 Automobile & Parts Sector Performance 1M 3M 12M Absolute % 7%
Relative to KSE % 8%
Relative Chart KSE100 vs Automobile & Parts 60%
KSE100 Index
Automobile and Parts Source: KSE, BMA Research Pakistan Auto Manufacturers’ Association (PAMA) released its monthly automobile sales numbers on Friday, 11 Jul’14. As per the data, automobile sales declined by 2.1%MoM/12.0%YoY to 11,913 units in Jun’14. Cumulative FY14 numbers clocked in at 135,279 units, up by a meager 0.5%YoY. Sales declined in Jun’14 owing to a free fall in INDU sales, down 48.6%MoM/64.7%YoY on account of an upcoming launch of its new generation Corolla (expected in Jul’14). HCAR and PSMC were the primary gainers in the month with 18.2%MoM/15.82%YoY and 10.7%MoM/10.8%YoY growths, respectively. Going forward, we expect sales in Jul’14 to decline on a monthly basis given historical trend wherein Jun’14 inculcates an element of Pre‐Budget purchases. Additionally, the imposition of additional advance tax on sale of locally assembled vehicles may also have some adverse bearing on the numbers in Jul’14. PSMC‐ on a growth streak: PSMC was able to achieve a growth of 10.7%MoM/10.7%YoY in Jun’14 primarily on account of Wagon‐R achieving sale of 784 units. Furthermore, Cultus and Mehran both depicted monthly and annual growth in sale numbers, hence ruling out any cannibalization effect on account of Wagon‐R. The company’s sales is also expected to receive a boost from the lifting of ban on CNG kit imports, however, we believe the company may take some time before re‐launching CNG based variants. As such, the CNG impact is likely to materialize by Sep’14 onwards. INDU‐ Declining sales; Waiting for the new generation Corolla: INDU witnessed a steep decline of 48.6%MoM/64.7%YoY in sales of Corolla to 1,499 units. The prime reason for declining sales is the upcoming launch of the new generation Corolla, expected in Jul’14 (variant: Altis). This led buyers to wait for the new version rather than buying the existing one. Furthermore, the company has stopped new bookings for corolla at the moment, indicating a further decline in the upcoming month. We further believe that the numbers shall remain depressed until Aug’14‐Sep’14 where launch of the XLi and GLi variants will revert sales numbers back to growth (XLi and GLi constitute the largest chunk in Corolla sales). Fortuner sales also disappointed in the month with a mere 4 units compared to 28 units last month. Market expectation of abolishment of FED on Fortuner led buyers to adopt a wait and see approach. The 10% decrease in Fortuner prices owing to absence of FED may act as a catalyst to Fortuner sales in the coming months. HCAR‐ sales jumping ahead: HCAR was the outperformer of the month with an 18.2%MoM/15.8%YoY growth in Jun’14 to 2,672 units. Both City and Civic performed well on MoM basis, registering 12.7% and 27.0% growth to 1,566 units and 1,106 units, respectively. Annual growth was even more impressive with the City witnessing a substantial 40.5%YoY growth in Jun’14 mainly due to a fall in Corolla sales. Other eye‐catching performers: Truck sales surged 67.7%MoM/43.2%YoY with the prime performers being ISUZU (manufacturer: GHNI) and Master, gaining 31.8%MoM/40.0%YoY and 260%MoM/68.2%YoY, respectively. The recent economic activity and reforms coupled with improving business prospects has led to the growth in truck business in our view. Sajjad Hussain [email protected] +92 111 262 111 Ext: 2065 Investor Perspective: The Auto industry has been on a growth streak for the past few months and is expected to continue the same trend in FY15, except for the couple of months ahead. In this regard, the upcoming months may witness declines due to the advance tax imposed on the purchase of new locally assembled vehicles along with further depression in Corolla sales on account of the pending launch. 1 Auto Numbers for the month of Jun’14 May'14 June'14 Corolla 2,443 970 MoM FY13 FY14 YoY ‐60.3% 32,608 29,087 ‐10.8% Hilux 446 525 17.7% 4,285 4,520 5.5% Fortuner 28 4 ‐85.7% 812 390 ‐52.0% INDU 2,917 1,499 ‐48.6% 37,705 33,997 ‐9.8% Liana 8 22 175.0% 164 161 ‐1.8% Cultus 990 1,171 18.3% 13,308 14,682 10.3% Mehran 2,361 2,946 24.8% 32,407 29,509 ‐8.9% Wagon R 528 784 48.5% Bolan 1,452 1,221 ‐15.9% 12,941 14,088 8.9% Swift 500 508 1.6% 6,096 5,128 ‐15.9% Ravi 1,154 1,090 ‐5.5% 10,734 12,419 15.7% PSMC 6,993 7,742 10.7% 75,650 77,608 2.6% Civic 871 1,106 27.0% 9,950 9,933 ‐0.2% City 1,389 1,566 12.7% 11,285 13,741 21.8% HCAR 2,260 2,672 18.2% 21,235 23,674 11.5% Total 12,170 11,913 ‐2.1% 134,590 135,279 0.5% 1,621 Source: PAMA, BMA Research