Result Preview - BMA Research - BMA CAPITAL

Jan 17, 2017 - Bloomberg. HCAR.PA. Reuters. HATC.KA. MCAP (USD mn). 967. 12M ADT (USD mn). 0.4. Shares Outstanding (mn). 143. -20%. 40%. 100%.
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Research Entity Notification Number: REP-005

HCAR: Earnings to increase 69%YoY in 9MMY17 HCAR - UNDERWEIGHT



Target Price: PKR 687

5.09%,

Current Price: PKR 709



HCAR Performance

 1M

3M

12M

Absolute %

18%

20%

205%

Relative to KSE %

12%

2%

147%

Bloomberg

HCAR.PA

Reuters

HATC.KA

MCAP (USD mn)

967

12M ADT (USD mn)

0.4

Shares Outstanding (mn)

143 Source: PSX, BMA Research

HCAR

KSE100 Index

160% 100% 40%

Jan-17

Dec-16

Oct-16

Nov-16

Sep-16

Jul-16

Aug-16

Jun-16

Apr-16

May-16

Mar-16

Jan-16

-20% Feb-16



The Board of Directors of HCAR will be meeting on 25th Jan'17 to announce 9MMY17 results. We preview the company to report PAT of PKR4.1bn (EPS: PKR28.6) in 9MMY17, up 69%YoY. Uptick in earnings can be attributed to volumetric growth, especially in the last two quarters, led by robust Civic volumes. Gross margins are expected to expand 51bps in the period due to depreciation of Yen, particularly in the last quarter. We believe positives have been priced in the scrip. Price performance in the near term will be dictated by any announcement regarding a new model and FX movement.

The Board of Directors of HCAR is expected to meet on 25th Jan'17 to announce 9MMY17 results. We expect the company to report PAT of PKR4.1bn (EPS: PKR28.6) for the period, showing an increase of 69%YoY. For the quarter, earnings are expected to clock in at PKR1.6bn (EPS: PKR11.0) compared to PKR611mn (EPS: PKR4.3) in the same period last year (up 156%YoY). The primary driver of earnings has been staggering volumetric growth, mainly led by robust demand of Civic. To note, Civic was launched in 2QMY17, so the company has not realized its impact in the full year. Volumetric growth - the main driver: Volumes have increased 33%YoY to 23.7k in 9MMY17 period. Moreover, volumes in the last two quarters have constituted a greater portion of Civic sales - we opine 60% of overall volumes constituted Civic sales compared to 40% historically. We believe the sales mix will continue to tilt towards Civic in the foreseeable future. Also, volumes are expected to grow going forward with the overall demand uptick in the auto space.

HCAR vs. KSE100 Relative 220%



Tuesday January 17, 2017

Source: PSX, BMA Research

Stable gross margins: Gross margins are expected to shrink 45bpsYoY in the outgoing quarter mainly due to 5.2%QoQ appreciation of JPY in 2QMY17 (lagged impact). To point out, HCAR will have a limited impact of JPY's depreciation since it has the least exposure to it among local OEMs. Moreover, stable PKR/USD parity will contain margin decline. Investment perspective: The scrip is currently trading at MY17F P/E multiple of 17.0x. We believe the scrip has priced in the positives which gives credence to our 'Underweight' stance. Near term performance of the scrip will be led by Yen's movement and any upgrade to product portfolio. To note, we expect the company to launch of BR-V in 1HCY17. Financial Summary (PKRmn) Sales

3QMY17

3QMY16

YoY

9MMY17

9MMY16

YoY

16,223

6,877

136%

42,238

27,896

51%

Hamza Raza

GP

2,424

1,058

129%

6,545

4,180

57%

[email protected]

GM

14.9%