Tuesday, December 18, 2012

PSMC: Estimates Revision

AKD Daily
 
Following an unexpected Loss of PkR193mn (LPS: PkR2.35) in 3QCY12, we have lowered our target price for PSMC to PkR115/share but retain our Buy stance. While we expect the company to post a marginal Loss in 4QCY12 as well, we remain optimistic regarding prospects in CY13F based on reduction in used car age limit to 3yrs and revival of auto financing coupled with benign outlook for global steel prices and the PkR/JPY parity. We now expect PSMC to sell 89k units in CY13F and 93k units in CY14F, leading to revised EPS estimates of PkR14.49 in CY13F and PkR15.43 in CY14F. We believe our estimates are conservative where PSMC is expected to be the main beneficiary of the new auto import policy while potential re-launch of the Alto variant, subject to parts import from India, has not yet been incorporated in our model. Having shed 11%FYTD, PSMC trades at a CY13F P/E of 5.85x where our revised target price of PkR115/share offers upside of 35%. Buy!      
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Earnings Revision: PSMC posted an unexpected Loss of PkR193mn (LPS: PkR2.35) in 3QCY12 we expect a further Loss of PkR118mn (LPS: PkR1.44) in 4QCY12. This brings our CY12F EPS estimate to PkR12.85, up 33%YoY. Following on, while we have trimmed EPS estimates across our forecast horizon, we believe likely better auto sales numbers in CY13F will act as the catalyst for improved share price performance. In this regard, note that effective Dec 15'12, used auto imports above 3yrs will not be allowed (Ministry of Commerce has issued notification). This is expected to be very positive for PSMC where, out of the 26k used cars imported in 5MFY13, more than half came in the 1000cc or below category. We now expect EPS of PkR14.49 in CY13F and PkR15.43 in CY14F where upside risk to our estimates emanates from potential aggressive revival of auto financing due to lower interest rates and a benign outlook for both global steel prices and PkR/JPY parity.
 
5MFY13 auto numbers - past = future! Industry sales declined by 23%YoY/3%MoM in Nov'12 to 9,154 units. As a result, 5MFY13 auto sales have registered at 49,090 units, down 31%YoY. In this regard, in Nov'12 PSMC recorded sales of 5,584 units, down 29%YoY but up an encouraging 10%MoM due to improved Mehran sales. We believe the latter is more representative of PSMC's sales outlook where the smaller variants should come in for increased demand post anticipated reduction in the quantum of used cars imports. PSMC has sold 89,776 units in 11MCY12 (67,137 units adjusted for the Taxi Scheme and Alto) and we expect the company to sell 89k units in CY13F as it fills the space voided by imported used cars.
 
Investment Perspective: PSMC has shed 11%FYTD vs. a positive 21% return by the KSE-100 Index in the same period. Based on our revised estimates, PSMC trades at a forward P/E of 5.85x while our revised target price of PkR115/share offers 35% upside. In this regard, we believe likely better sales postings from CY13F onwards will act as the catalyst for improved share price performance. Buy!

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