PSMC posted 4QCY20 NPAT of PKR1.0bn (EPS: PKR12.26) up from a net loss of PKR233mn (LPS: PKR2.84) in 4QCY19. This takes CY20 net loss to PKR1.6bn (LPS: PKR19.31). This is a particularly strong result vs. our projected net loss of PKR146mn (LPS: PKR1.78). The variance primarily stems from (i) gross margin of 8.2% vs. our expectation of 5.6% and (ii) significantly higher other income (which led to the earnings beat).
Key result highlights for 4QCY20:
Volumes increased by 17% qoq (down 6% yoy) to 20,451 units, which is largely attributed to the strong demand post Covid-19 lockdown. Revenue has clocked in at PKR26.6bn for the quarter, broadly in line with our estimate of c.PKR26.0bn, where the slight deviation may be due to higher trading segment sales.
Gross margins have risen by c. 3ppt qoq to 8.2%, higher than our expected GMs of 5.6%. PSMC announced multiple price hikes on various models during the quarter, leading to improved margins, in our view. The margins uptick may also be because of a decrease in overheads per unit and monetization of inventory from previous quarter. We expect margins to improve in the coming quarters following the recent PKR/US$ appreciation.
Finance costs has come broadly in line with our estimates, declining a sharp 42% qoq, and 73% yoy. This may be attributed to a decline in short-term borrowings amid higher sales, which may have resulted in lower inventory during the quarter (higher cash balances), in our view. Other Income is up a sharp 3x qoq, due to the inflow of customer advances coupled with the long lead times (3mth bookings).
Distribution expenses are up 42% qoq increase, which may be due to the relatively stronger sales. Admin expenses, on the other hand, have fallen c.60% qoq.
With the recent PKR/US$ appreciation, smoothening of the supply chain issues and price increases during 4Q, we believe that margins may further improve in CY21. The strong earnings beat supports our Buy stance on PSMC (December 2021 TP of PKR330/sh), which has turned profitable after eight consecutive quarters. The improvement in the overall economy and lower for longer interest rates are likely to reinforce sales for PSMC, which has been lagging behind the premium segment post-lockdown.
Courtesy – Intermarket Securities Limited