Earnings continue to disappoint: PSMC posted PAT of PKR109mn (EPS: PKR1.32) for 3QCY10, down 62% QoQ and up 113% YoY, taking 9MCY10 PAT to PKR373mn (EPS: PKR4.54).
Buoyant volumetric sales: While 3QCY10 revenues declined 20% QoQ due to lower volumetric sales, led by high base effect (2QCY10 sales up 18%QoQ), on YoY basis 3QCY10 sales were still 19% higher owing to 8% YoY jump in volumetric sales.
Gross margins plunge due to weaker PKR/Yen; Other income declines QoQ: Gross margin for 3QCY10 clocked in at 2.9%, 179bps lower than the previous quarter, primarily due to weaker PKR/Yen parity. Pak Rupee depreciated by 7.3%/6.2% during 2Q/3QCY10. Other income also fell by 22% QoQ, likely due to lower advances from customers.
Post-flood demand yet to show major weakness: Since we have already incorporated weak post floods demand, we stick to our expectation of total volumetric sales of 75,473 units for PSMC in CY10 (unit sales of 17,335 in Q4CY10) and expect CY10 EPS at PKR5.91.
Recommend HOLD at current levels: At yesterday’s closing price PSMC trades at CY11E P/E of 10.6x and offers minimal upside to our June-2011 PT of PKR 77/share.
Buoyant volumetric sales
Proposed higher GST imposition in FY11 budget triggered anticipatory buying in June 2010 which caused 2QCY10 volumetric sales to jump by 18% QoQ and invoked high base effect for 3QCY10, where volumetric sales dropped 18% QoQ. Consequently, company’s overall revenue shrank by 20% QoQ. However, on YoY basis, volumetric sales registered 8% growth, inducing a 19% YoY jump in revenue.
Gross margins plunge due to weaker PKR/Yen; other income declines QoQ
During 3QCY10, owing to 6.7% depreciation in PKR/Yen, gross margin clocked in at 2.9%, 179bps lower over last quarter, where despite a 7.3% slide in PKR/Yen gross margin was stronger at 4.7%. In our view, the ongoing decline in PKR/Yen could prompt company to raise prices to protect margins in the upcoming quarter. Furthermore, other income declined by 22% QoQ likely due to lower advances from customers, given volumetric sales fell by 18% QoQ in 3QCY10.
Post-flood demand yet to show major weakness
While floods have yet to impact demand for PSMC cars, media reports indicate PSMC has set 4QCY10 production target at 22,584 units, implying a 31% YoY and 27% QoQ jump in volumetric sales. However, remaining conservative, we have incorporated weak post floods demand, and stick to our expectation of total volumetric sales of 75,473 units for PSMC in CY10 (unit sales of 17,335 in 4QCY10) and CY10 EPS at PKR5.91.
Recommend HOLD at current levels
At yesterday’s closing price, PSMC trades at CY11E P/E of 10.6x and offers minimal upside to our June-2011 PT of PKR 77/share. We stick to our recommendation of HOLD at current levels.
Economic & Political News
Govt to launch Ijara Sukuk bonds next month: official
The cash-hungry government has planned to raise PKR35bn by issuing Ijara Sukuk bonds in the domestic market next month, which will be used to finance fiscal deficit, a top finance ministry official said. The bonds will mature in a period of one to three years and 2,200 acres of Jinnah Terminal land in Karachi will be pledged for this purpose, the central bank wrote in its annual report for financial year 2009/10
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