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8/6/2019 Autos - Implications of Potential Yen Appreciation
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akistan Flash News KASB Wire
Autos – implications of potential Yen appreciation Details of losses from the worst earthquake in Japan’s history and resulting
Tsunami
are
yet
to
be
calculated,
though
the
Japanese
PM
called
it
the
worst
disaster to hit Japan since WWII.
Initial news flow and analyst comments suggest the impact on GDP to be lower
than the 1995 Kobe earthquake as the affected areas are neither densely
populated not highly industrialized.
Having said that, Japanese being the third‐largest economy and net savers (23.1%
of GDP) are expected to impact both global currency and commodities markets.
While weaker initial demand should negatively affect commodities prices,
Japanese repatriating investments to use in relief/reconstruction activities should
cause Yen appreciation. The Japanese yen appreciated by 20% post Kobe
earthquake.
We believe this can affect autos by (1) disruption in parts supplies though
inventory holdings (35‐45 days on average) should help in smooth local
production in the short‐term, (2) Yen appreciation raising parts and CKD costs. On
a positive side, CBUs becoming more expensive will limit inflow of used cars in the
local market.
While currency analysts are yet to come up with estimates of likely Yen
appreciation, our static analysis suggest that every 5% Yen appreciation will
contract PSMC’s 2011E earnings by 3.4/sh (from our base‐case of PRs4.5/sh) and
Indus’ FY11E earnings by PRs3.2/sh (from our base‐case of PRs33.7/sh). The swing
factors from these estimates include (1) automakers raising prices to pass‐on the
impact
to
end
users
as
they
are
operating
at
wafer‐
thin
margins
and
(2)
cushion
from US$/Yen hedging used by automakers to counter FX risk.
KASB Securities Limited, 5th Floor, Trade Centre, I.I. Chundrigar Road, Karachi
This report has been prepared by KASB Securities Ltd. and is provided for information purposes only. Under no circumstances is to be used or considered as an offer
to sell or solicitation of any offer to buy. While all reasonable care has been taken to ensure that the information contained therein is not untrue or misleading at
the time of publication, we make no representation as to its accuracy or completeness and it should not be relied upon as such. From time to time KASB Securities
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or indirectly subject of this report. This report is provided solely for the information of professional advisers who are expected to make their own investment
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use of this report or its contents. In particular, the report takes no accounts of the investment objectives, financial situation and particular need of individuals, who
should seek further advice before making any investment. This report may not be reproduced, distributed or published by any recipient for any purpose. The views
expressed in this document are those of the KASB Securities & Economic Research Department and do not necessarily reflect those of KASB or its directors. KASB,as a full‐service firm, has or may have business relationships, including investment‐banking relationships, with the companies in this report.
14 March 2011 Muhammad Saqib Sajjad [email protected] KASB Securities Limited +92 21 111 222 000
PSMC earning sensitivity to Yen/Yen/PRs 2011E ‐10% 11.3
‐5% 7.9
Base 4.5 +5% 1.1
+10% (2.3) Source: KASB research
INDU earning sensitivity to Yen/Yen/PRs FY11E ‐10% 40.2
‐5% 37.0
Base 33.7 +5% 30.5
+10% 27.3
Source: KASB research
