PSMC to outperform industry profitability growth

Our Correspondent

PSMC is likely to report EPS of Rs9.11/sh during 3QCY20 against LPS of Rs1.66 during 3QCY19. This profitability shift is because of higher fixed cost coverage as PSMC recorded the highest ever sales of Rs52billion.

It will be up 2.31/1.74x YoY/QoQ, given the sales tax reduction in the FY22 Budget.

However, gross margins would drop by 0.3/1ppt YoY/QoQ, given the rupee’s depreciating to an all-time low. Better cash management would increase other income by 2.9/1.5% YoY/QoQ, as late delivery of vehicles would hold up inventory, and repayment of short-term loans from parents would decrease debt.

The auto sector is likely to witness a substantial growth of 2.85x YoY in earning for 1QFY22 given high volumetric demand driven by (1) tax reforms in the FY22 Budget, (2) favorable economic conditions, and (3) high auto financing.

On a sequential basis, auto manufacturers would depict an increase of 40% QoQ accredited to dissipating supply chain issues. However, Rupee depreciation would restrict profitability due to the rupee depreciating by 7% QoQ. We expect INDU/HCAR/PSMC to report EPS of Rs58.6/9.64/9.11.

Earnings to recuperate due to higher volumes

FSL auto universe is likely to report a profit of Rs6.7bn in 1QFY22, compared to a profit of Rs2.3bn in 1QFY21 given the post-pandemic recovery phase of the economy. This increase in profitability is own to a growth of 81% YoY, (2) 2.1x YoY increase in other income, and (3) higher fixed cost coverage.

We estimate net sales ↑81/40% YoY/QoQ and gross margins to clock in at 7.5% (↑1.4/↓1.5ppt YoY/QoQ) for 1QFY22. We expect the margins to stay depressed given the rising current account deficit that would keep pressure on the exchange rate.

Furthermore, sales growth would tamper down, given new players penetrating the market, Foundation Securities said in a report.

INDU’s growth in core supported by other income

INDU profitability is likely to increase by 2.1x YoY to report EPS at Rs58.6/sh for 1QFY21, with a dividend expectation of Rs35.2/sh. This earning’s growth is due to the release in sales of 80/28% YoY/QoQ.

This increase in sales was driven by Corolla/Yaris increasing by 80/20% YoY (29/10% QoQ) and Fortuner/Hilux increasing by 311/89% YoY (46/79% QoQ).

However, gross margins would clock in at 10.1% (↑3.4/↓2.2ppt YoY/QoQ). INDU profitability would further be supported by other income increasing by 64% YoY to clock in at Rs1.8bn.

To highlight, INDU had cash and cash equivalents of Rs82bn at the end of 4QFY21.

Curtailed margins would restrict HCAR’s profit.HCAR is likely to report EPS of Rs7.24/sh (↑57/17% YoY/QoQ) for 3MFY21. Sales for 3MFY21 increased by 28/20 YoY/QoQ, whereas gross margins would clock in at 6.5% (↓0.3ppt YoY), given rupee devaluation, which would be restricted by higher fixed cost coverage.

Product-wise, sales are increasing by Civic/City increasing sales by 20/21% YoY/QoQ. Similarly, BRV sales were up/down 78/71% YoY/QoQ. The net margin would clock in at 9.6% (↑2.1/1.2ppt YoY/QoQ), supported by other income of Rs550mn (↑740/66% YoY/QoQ).

We have an outperform stance on the sector. Improving macro factors and a low policy rate would provide an impetus to overall demand. Still, rupee depreciation and new competition would keep the need for the existing OEMs in check, Foundation Securities says.