Hinopak Motors Limited

Hinopak Motors Limited (PSX: HINO) was incorporated as a public limited company in Pakistan in 1986. The company is engaged in the assembly, progressive manufacturing and sale of Hino buses and trucks as well as sale of its spare parts and accessories. HINO is the subsidiary of Hino Motors Limited Japan. The ultimate parent company of HINO is Toyota Motors Corporation Japan.

Pattern of Shareholding

As of March 31, 2022, HINO hasa total of 24.801 million shares outstanding which are held by 1675 shareholders. Hino Motors limited Japan and Toyota Motors Corporation Japan are the major shareholders of HINO with a stake of 89.5 percent in the company. This is followed by local general public holding 6.1 percent shares of HINO. Financial institutions account for 3.4 percent of the outstanding share volume of HINO. The remaining shares are held by other categories of shareholders, each having less than 1 percent voting interest in the company.

Historical Performance (2018-22)

HINO’s topline had been inching down in all the years under consideration except for a rise in 2022. Between2019 and2021, the company consistently posted net losses. Net loss reached its highest level in 2020 and then tumbled in 2021. In the subsequent year, HINO was able to post a positive bottomline. Gross and operating margins of the company slid in 2019 and entered negative zone in 2020. However, they rode the path to recovery from 2021. Net profit margin posted positive figures only in 2018 and 2022. The detailed performance review of each of the years under consideration is given below.

In 2019, HINO’s sales slumped by 28 percent year-on-year as the commercial vehicle industry in Pakistan shrank by 14 percent year-on-year due to depreciation of Pak Rupee coupled with the slowdown of CPEC on account of lesser government spending in the project. Besides, the auto industry also suffered a volumetric decline due to restriction imposed on the purchase of vehicles by non-filers. During the year, the company’s sales of HINO Chassis slumped by 34 percent year-on-year to clock in at 2850 units. Conversely, bus and other bodies and well as Hilux frame recorded an uptick of 72 percent and 0.5 percent to clock in at 822 units and 10,377 units respectively. The company was able to maintain its market share of 31 percent and 41 percent in truck segment and bus segment respectively. Due to decline in the company’s manufacturing operations, cost of sales dropped by 24 percent year-on-year in 2019. High per unit cost is evident by the fact that gross profit shrank by 63 percent year-on-year in 2019 while GP margin fell from 11.4 percent in 2018 to 5.4 percent in 2019. Owing to lesser staff cost, advertising and promotion as well as legal and professional charges, distribution cost ticked down by 18 percent year-on-year in 2019. Administrative expense also declined by 10 percent year-on-year in 2019. Other income posted a massive 51 percent year-on-year plunge in 2019 due to lesser return on bank deposits and lesser commission from Group Company. Other expense also plummeted by a whopping 91 percent year-on-year on account of low provisioning for WWF and WPPF in 2019. The company also booked impairment of Rs. 19.53 million on trade receivables in 2019. Operating profit shriveled by 79 percent year-on-year in 2019 while OP margin inched down from 8.8 percent in 2018 to 2.6 percent in 2019. Finance cost grew by 50 percent year-on-year in 2019 on the heels on high discount rate and also because of short-term loans obtained by the company during the year which were not on its books until 2018. However, the major component of finance cost was exchange loss which stood at Rs.815.803 million in 2019, up 28 percent year-on-year. The company recorded a net loss of Rs.873.28 million in 2019 as against the net profit of Rs.1149.38 million in 2018. HINO posted a loss per share of Rs.70.42 in 2019 versus an EPS of Rs.92.69 in 2018.

In 2020, topline posted another 31 percent year-on-year slump. The automobile market shrank by 44 percent year-on-year in 2020 to clock in at 4934 units due to contraction of economy on account of COVID-19, lockdown imposed during the year and restriction on the movement of people and goods which lowered the demand of automobiles. The sale of Hino Chassis further reduced to 1639 units, down 42.5 percent year-on-year. The sale of bus and other bodies also massively plunged to 345 and 5897 respectively, registering a downfall of 58 percent and 43 percent correspondingly. High inflation and Pak Rupee depreciation pushed up the cost of sales, resulting in a gross loss of Rs.170.41 million in 2020.Meticulous cost cutting measures resulted in a reduction of 2 percent and 6 percent year-on-year in distribution expense and administrative expense respectively despite high inflation. Other income slid down by 44 percent year-on-year in 2020 on account of lesser profit on saving deposits and lesser scrap sales made during the year. HINO posted an operating loss of Rs.809.218 million in 2020. Finance cost grew by only 1 percent year-on-year due to substantial drop in exchange loss as the company made lesser imports owing to curtailed demand in the local market. The net loss magnified by 135 percent year-on-year in 2020 to clock in at Rs.2054.98 million with a loss per share of Rs.110.33.

The sales of HINO couldn’t recover and posted another 31 percent year-on-year plunge. The automobile market also further contracted by 29 percent year-on-year in 2021. The sale of Hino Chassis and bus and other bodies plummeted by 54 percent and 21.5 percent year-on-year respectively in 2021 while the sale of Hilux frame showed signs of recovery and grew by 53 percent year-on-year. The company was able to post a gross profit of Rs.687.37 million in 2021 as against the gross loss of Rs.170.41 million in 2020. This was on the back of price revisions and cost control measures. Distribution expense shrank by 12 percent year-on-year while administrative expense remained at almost the same level as recorded in 2020. Other income slid by 26 percent year-on-year in 2021 as there was no commission income from Group Company in 2021. Lesser expenses resulted in an operating profit of Rs.70.60 million in 2021 as against the operating loss of Rs.809.218 million in 2020. OP margin was recorded at 0.8 percent in 2021. While finance cost climbed down by 77 percent year-on-year not only because of low discount rate but also because of the issuance of right shares during the year to pay its short-term loans during the year. As of March 2021, the company had no short-term borrowings on its balance sheet. Despite significant reduction, finance cost was big enough to turn operating into a net loss of Rs.288.29 million in 2021, down 86 percent year-on-year. The company also posted a loss per share of Rs.13.37 in 2021.

After three successive years of topline decline and net losses, in 2022, HINO posted a year-on-year topline growth of 37 percent. This came on the back of both volumetric growth as well as price increases. The sales volume of Hino Chassis, bus and other bodies as well as Hilux frame posted an uptick of 28 percent, 29 percent and 73 percent respectively in 2022. The overall size of automobile market also grew by 68 percent year-on-year in the financial year ending March’22 as the economy fully rebounded from COVID-19. Although cost of sales also grew by 34 percent year-on-year in 2022 on account of inflation, gross profit rebound of 76 percent speaks volume of the superior performance delivered in terms of revenues. GP margin grew to 9.7 percent in 2022. Owing to an increase in the company’s operations, distribution and administrative cost also increased by 15 percent and 6 percent respectively during 2022. Higher scrap sales and return on bank deposits pushed the other income up by a huge 251 percent in 2022. Unlike the last three years, where the company booked impairment on trade receivables, in 2022, the company booked reversal of Rs.16.62 million. Operating profit grew by 844 percent in 2022 with OP margin climbing up to 5.3 percent. As the company paid off its short-term borrowings in 2021, finance cost majorly comprised of exchange loss and bank charges. This translated into a 57 percent year-on-year drop in finance cost in 2022. The company posted a net profit of Rs.417.13 million in 2022 with an NP margin of 3.3 percent. EPS clocked in at Rs.16.82 in 2022.

Recent Performance (Nine months ending December 2022)

HINO’s topline grew by 11 percent year-on-year on the back of 17.6 percent rise in the sales volume. Gross profit dropped by 15 percent year-on-year in the 9MFY23 while GP margin shrank to 8.3 percent from 10.9 percent during the same period last year. Distribution and Administrative expenses posted a year-on-year rise of 26 percent and 16 percent respectively in 9MFY23. Conversely, the company was able to trim down its other expense by 48 percent year-on-year on account of less WWF and WPPF. Other income grew by 26 percent year-on-year in 9MFY23. Operating profit posted a year-on-year plunge of 35 percent in 9MFY23 translating into an OP margin of 3.7 percent versus 6.4 percent during the same period last year. Finance cost grew by 32 percent year-on-year on the back of exchange loss. During the period, the company also obtained a short-term loan of Rs.278.78 million. Net profit contracted by 97 percent year-on-year in 9MFY23 to clock in at Rs. 10.18 million with an NP margin of 0.1 percent versus 3.9 percent during the same period last year. EPS also climbed down from Rs.13.77 in 9MFY22 to Rs.0.41 in 9MFY23.

Future Outlook

Import restrictions on account of dwindling foreign exchange reserves, steep depreciation of Pak Rupee, high cost of doing business as well as lackluster economic and industrial activity will not only take its toll on the volumes of HINO but will also push its cost up. Reportedly, the company had shut down its plant in the last quarter of the year ending March’23 owing to supply chain impediments. The economic and political turmoil prevailing in the country sees no respite in the coming times; hence the sales as well as profitability of HINO are anticipated to remain tamed.