Lucky partners with Samsung to Produce Mobile Devices

Lucky Motor Corporation Limited (LMC) has entered into an agreement with Samsung Gulf Electronics for producing Samsung branded Mobile Devices in Pakistan.

Samsung is going to set up a mobile assembly Plant in Pakistan and Lucky Cement Motors has now formed a joint venture with it.

In a notice to Stock Exchange, Lucky Cement Limited has informed this to Stock Exchange in accordance with Sections 96 and 131 of the Securities Act, 2015(the “Act”) and pursuant to Regulation 5.6.1 of the PSX Regulations (the Regulations).

Lucky Cement Limited has informed that Lucky Motor Corporation Limited (LMC), (a subsidiary of Lucky Cement Limited), which is currently doing the business of manufacturing, assembly, marketing, distribution, and sales of Kia and Peugeot branded vehicles, parts, and accessories thereof, in Pakistan, has recently entered into an agreement with Samsung Gulf Electronics Co., FZE(“Samsung”)for producingSamsung branded Mobile Devices in Pakistan.

In pursuance of this transaction, LMC has also initiated the process of seeking necessary regulatory approvals to carry on the said business and in this endeavor, has filed an application with Pakistan Telecommunication Authority (PTA) for securing the license.

It further said that the production facility for producing Samsung Mobile Devices will be located at LMC’s existing plant facility producing vehicles at Bin Qasim Industrial Park, Special Economic Zone,Port Qasim-Karachi.

The production facility is likely to complete by end of December 2021. That further information on the amount contemplated to be invested in the production facility and the capacity thereof shall be discussed between the Parties (Samsung and LMC) in due course of time.

Earlier, the government of PTI had approved device manufacturing facilities to attract investment in the manufacturing of mobile devices in Pakistan.

Read More: Oppo allowed the manufacturing of mobile phones in Pakistan

In Policy, the government had offered several tax incentives for the mobile devices manufactured to lure them to set up their plants in Pakistan.

Following the announcement of the policy, mobile manufacturers have responded and they are setting up plants in Pakistan. Samsung is one of them that has partnered with Lucky Cement Limited to set up an assembly plant in the country.

In a notice sent to the exchange by Lucky Cement (LUCK), the company has intimated that its subsidiary Lucky Motor Corporation (LMC) has entered into an agreement with Samsung Gulf Electronics (a South Korea-based company) for producing Samsung mobile devices in Pakistan. Rumors of the above had been in the market for the past couple of weeks, however, it has now been confirmed by the company through the notice to the exchange.

LUCK owns 71.55% of LMC, and expectations are high for this latest venture as LUCK has been hugely successful with its recent initiatives like (1) bringing KIA (another South Korea based company) to Pakistan to assemble automobiles and (2) acquisition and then the turnaround of ICI Pakistan (ICI), amongst others.

Samsung had set up an assembly plant in Bangladesh in 2018, which has been termed a huge success. Samsung is presently producing 95% of the Samsung phones sold in Bangladesh, with the production of around 2.5mn units annually.

The annual Pakistan handset market size is around 45 million units with around 32 million units imports.The country produces 13 million units locally. There have been 28 million mobile sets imports in Pakistan during 2019. Out of it, there were around 1.54 million units of Samsung that accounted for 5.5% of the units and 15-20% in terms of the value of imports.

In terms of value, the market size of mobile sets in Pakistan is around at US$2.5 billion, based on imports data by the Pakistan Bureau of Statistics (PBS).

There is a rumor that investment will be around US$100mn (Rs16.5bn), where we believe cash requirement for the investment is not a major concern. LMC is likely to generate an average EBITDA/year of Rs15 billion over the next two years from its auto assembly plant.

The production facility is likely to complete by end of Dec-2021. Our back of the envelope working suggests that the venture can generate annual revenue of around US$300-600mn. We expect the project can make net profits of Rs1.0-1.5bn in its early years, Topline Research in a report said.

The government is also providing duty protection to the industry through its Mobile Device Manufacturing Policy, which can potentially reduce prices of locally manufactured sets by up to 50%. The company will set up a plant in a Special Economic Zone, which will provide tax exemption to the venture. Topline said that it has seen in other countries like Vietnam and Bangladesh, that Samsung looks to expand its portfolio after initially setting up a mobile phone assembly plant.

We have a Buy rating on LUCK. We will revisit our financial model of LUCK when more details are available, Topline Research in a report said.