PSMC posted 3QCY19 net loss of PKR1,161mn (LPS: PKR14.11), compared to a net loss of PKR545mn (EPS: PKR6.62) in 2QCY19. This loss is worse than our expected LPS of PKR2.24/sh, as gross margins went into the negative territory. During 9MCY19, NLAT accumulated to PKR2,686mn (EPS: PKR32.
63) vs. NPAT of PKR1,298mn (EPS: PKR15.77).
3Q19 Key result highlights:
§ 17%qoq decline in topline, even though volumes declined by 7%qoq, as sales of higher priced vehicles declined more while that of Alto increased (Alto sales were 56% of the mix during the quarter).
§ Despite significant price increases (up to 20%) from Jul’19 to account for PKR depreciation, additional custom duties and FED, the company has posted a gross loss of PKR232mn, a first since 2QCY12. We were expected gross margins to improve from 1.0% posted in last quarter due to the above price increase. However, we think margins on the newly launched Alto are lower than other models that resulted in further margin erosion.
§ Finance cost remained stable at PKR384mn on sequential basis as higher interest rates countered the impact of improved working capital cycle.
§ Tax reversal of PKR477mn despite the company falling under minimum tax regime on turnover basis. To recall, PSMC recorded a reversal of PKR1,053mn, due to realization of deferred tax asset. PSMC has been booking turnover tax since 3QCY18 (which has a carry forward period of five years) and it appears that the company is expecting a higher profitability going forward, in our view.
Our Dec’19 TP of PKR160/sh implies a Neutral stance on the scrip. Despite auto sales near trough levels and stable PKR, margin profile of the company is extremely weak, where turnover tax will remain an issue in the near-term. (Courtesy: Intermarket Securities Limited.)