AKD Quotidian about — Auto Sector: Nov’13 Industry Volume Update

Karachi, December 12, 2013 (PPI-OT): Auto industry sales in Oct’13 have clocked in at 9,588 units, higher by 5%YoY but lower by 4%MoM.

According to AKD Securities, considering auto continues to rise (+22%YoY/2%MoM to PkR54.8bn), AKD Securities attributes sequentially lower sales by local assemblers to competition faced from imported variants and New Year registrations. Relatively weak Nov’13 sales bring 5MFY14 industry volume off take to 52,384 units, up by 7%YoY with major impetus provided by HCAR (5MFY14 sales up by 26%YoY). On the tractors front, while combined 5MFY14 sales are lower by 37%YoY, sales increased by 31%MoM to 4,319 units, sequential tractor sales largely driven by pre-buying in AKD Securities’ view with GST scheduled to rise to 17% from Jan’14. Going forward, AKD Securities flags awaited release of new models/AIDP-II as key catalysts. At current levels, AKD Securities’ preferred play in the Auto space is INDU (TP: PkR385/share).

Poorest month FYTD: Nov’13 auto sales have clocked in at 9,588 units, up by 5%YoY but lower by 4%MoM to clock in at their lowest monthly level FYTD. The sequential dip is largely in line with precedence where sales tend to slow ahead of New Year registrations. This brings 5MFY14 industry sales to 52,384 units, up by 7%YoY. Tractor sales increased by 31% MoM to 4,319 units, largely due to pre-buying in AKD Securities’ view. Company-wise breakdown for sales is as follows:

PSMC: Nov’13 sales clocked in at 5,989 units, up by 7%YoY/8%MoM with sequential growth driven by Mehran sales (+30%MoM to 2,568 units) even as declines were recorded by Swift (-9%MoM to 328 units) and Bolan (-7%MoM to 1,003 units) variants. As a result, PSMC’s cumulative 5MFY14 volumes came in at 29,511 units, up by 4%YoY.

INDU: Nov’13 sales came in at 2,183 units, down by 16%MoM but marginally up by 3%YoY. 5MFY14 sales thereby came in at 13,197 units, up by just 1%YoY. On an individual product basis, Corolla sales were recorded at 1,966 units, down by 13% MoM while Hilux sales dropped by a sharp 36%MoM to 192 units and Fortuner sales clocked in at just 25 units in Nov’13. Despite the year-end dip in sales, INDU remains AKD Securities’ top pick in the Pakistan auto space where AKD Securities’ TP of PkR385/share offers 13.16% upside.

HCAR: The Company recorded disappointing sales volumes of 1,310 units in Nov’13, lower by 24%MoM/8%YoY. In this regard, City sales dropped by 18%MoM to just 820 units and Civic sales dropped by 32%MoM to just 490 units. However, 5MFY14 sale of 9,334 units are up by 26%YoY.

Sequentially higher tractor sales: Tractor sales increased by 31%MoM to 4,319 units, largely due to pre-buying in AKD Securities’ view with GST set to increase to 17% from Jan’14, up from 10% at present. In this regard, the Pakistan Industrial and Traders Associations Front (PIAF) and the Lahore Chamber of Commerce and Industry (LCCI) have called for the withdrawal of this GST uptick but a final decision is still awaited. Sales of AGTL in Nov’13 came in at 1,814 units, at par with the previous month and lower by 23%YoY. Sales for MTL rebounded by a sharp 61%MoM to 2,505 units but this was still lower by 29%YoY.

Outlook: Going forward, while the awaited release of new models/AIDP can be key catalysts, imported competition continues to pose threats. Within the backdrop of murky regulatory developments (uncertainty as to what AIDP will deliver), AKD Securities prefers INDU (TP: PkR385/share) where AKD Securities’ liking is underpinned by its relatively resilient product suite.

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