Auto Sector: Sales volume update
Auto sales statistics released by the Pakistan Automotive Manufacturers Association (PAMA) for Dec '09 show a 119%YoY growth compared to Dec '08. This is partly due to a low base set last year. Inline with the seasonal trends, with potential buyers holding off their buying activity for New Year registrations, auto sales have sequentially declined by 15%MoM in Dec '09 versus Nov '09. That said, statistics for 1HFY10 show overall (Car+LCVs) auto sales have increased by around 16%YoY to 61.5k vehicles on the back of improving base dynamics. Similarly, the breakup reveals that while car sales showed a healthy growth of 28%YoY during 1HFY10, LCV sales have weighed down on industry sales - declining by 28%YoY during the same period. In our view, 2HFY10 should form the basis of a gradual recovery in auto demand on the back of improving macro-economic fundamentals. We believe preferred plays in the auto sector should be cash rich companies with vehicle composition mix less reliant on auto financing. From this vantage, INDU is our selective pick in the auto sector. Current price implies a 22% upside to our target price of PkR251/share. Buy!
AKD Research
January 12 2010
Autos: CY09 ends on a positive note
Auto sales during Dec-09 depicted 118% YoY improvement amid low-base affect, although seasonality trimmed MoM performance by 15%.
CY09 can be termed as a year of two halves where price cuts in 2H09 - post FY10 budget - kick-started demand.
We expect CY10 auto sales to improve by 20-22% YoY. Pak Suzuki (PSMC) will remain at the centre of the recovery with 41% YoY higher sales while for Indus we expect relatively stable performance with 7% unit growth YoY.
FX volatility remains a key swing factor where we estimate 1% rupee movement against Yen can affect PSMC’s earnings by 8% and Indus by 4% in either direction.
Indus remains our top pick with PO of PRs240/sh while we are Neutral on PSMC.
KASB Securities and Economics Research
January 12 2010
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