Hinopak Motors Limited

Hinopak Motors Limited was established in 1986 by UAE-based Al-Futtaim group and PACO Pakistan through a collaboration of two Japanese companies Hino Motors and Toyota Tsusho Corporation (TTC). Later in 1998, PACO Pakistan and Al-Futtaim disinvested in the company leaving the two Japanese companies to take over control.
Hinopak is most famous for its Hino trucks-it is in the business of assembling, manufacturing and selling medium and heavy duty trucks and buses across Pakistan. Its bus line, trucks and prime movers include multiple models. Hino's special purpose vehicles are engaged in hauling a variety of supplies, such as food, equipment and machinery.
The company has the biggest market share in the trucking industry today for trucks and prime movers. The company runs a vast dealership network for after sales services support. It also exports its business to Middle Eastern and African countries.
Ownership
The company is owned by Hino Motors Japan and Toyota Tsusho Corporation who together hold 89 percent of the company's shares. Hinopak is a Toyota Group Company, subsidiary of Hino Motors Ltd, Japan, while Toyota Motors Corporation is the ultimate parent of the group The company's board of directors is consisted of mostly names from the parent company with few locals at senior positions. When books closed for the company's financial year ending March 2016, 59 percent of shares were held by Hino Motors while 30 percent were held by TTC. Almost 5 percent shares are held by the public.
Financial and operational performance (year ending March) The core business for the company is bus and trucks. The company sold over 5,000 units in 2011 and increased it to more than 8,700 units by the outgoing financial year. Hilux frame sales as a share of total sales was 51 percent in 2011 but went up to 72 percent in 2013 and down to 61 percent in 2016. Hilux frames were sold out to Indus Motors Company.
Hino chassis-which is the lower part of the vehicle, consisting of the frame on which the body is built-sales rose from about 2,000 in 2011 to almost 3,000 in 2016.
Buses have had a slowdown in the past six years, the lowest during this period-selling 461 units in 2016 (2015: 1,547 units) but the company maintains that it holds 67 percent of the bus market share while trucks held 42 percent of the market share in the outgoing financial year. The company invested Rs 370 million in its capital goods to increase productivity, improve technology and to achieve higher safety and quality standards.
The Body Manufacturing Plant (BMD) produced 470 bodies of different and Specialized varieties in 2016 compared to a much higher 1,517 due to institutional orders.
Revenue wise, the company has grown from earning Rs 9.2 billion to Rs 18 billion in the past five years. The real revenue generator is Hino chassis that contributed to Rs 16 billion of the revenues in 2016, while spare parts had one percent and buses contributed 5 percent to the total revenues.
Cost of sales per sales has been cut down to bring margins up-going from 8 percent to 15 percent between 2011 and 2016 which is a promising upward trend. Whereas the company incurred a loss of Rs 30 million in after-tax calculations in 2011; the company was able to become decently profitable earning Rs 1.1 billion in after-tax profits in 2016. Earnings per share consequently have gone from a negative to Rs 90. Profit margins were higher in 2015 (8.5%) and came down to 6.16 percent in 2016.
Snapshot of first quarter ending June 2016
Overall sales for trucks and buses in the first quarter were 39 percent higher than the quarter last year. This is seen translating into a 46 percent jump in net revenues-going from Rs 3.86 billion to Rs 5.6 billion. Meanwhile, a 59 percent increase in cost of sales contributed to a fall in margins from 19 percent in Q1 of last year to 11 percent in Q1 of this year. Yen appreciation against rupee may have tilted toward a cost disadvantage suppressing margins considerably. This was also seen in the outgoing financial year when despite greater a healthy increase in revenue; margins reduced from 16 percent to 15 percent between 2015 and 2016. It would be a pity if the company continues getting hurt by the unfavourable foreign exchange or prices of steel.
With greater much finance costs in the mix; after tax profits fell by 81 percent in Q1 of the two years, clocking at Rs 73.5 million against, Rs 381 million of Q1 last year. Consequently, earnings per share shrank from Rs 30.75 to Rs 5.93.
Outlook The trucking sector is fast expanding with more and more players hoping to enter and get a piece of the pie. As many as eight players already exist including Hino, and more are entering-there is Dewan Motors with Shahzore trucks, FAW's popularity is already rising and it is also doubling its capacity meanwhile Chinese Fonton group is very interested in entering in the booming sector.
It is heard that as many as 20,000 trucks will be seen on the roads once CPEC is in its full swing and it is no doubt the demand for quality truck and parts would soar in the next five years. While Hino is a leader now capturing half the market for trucks and buses both; greater competition is always a threat to its market share. Its established brand name and reach to institutional clients gives the brand an edge.
Other incidental challenges are continued adverse foreign exchange parity that could take up cost of production; the rise of used and resold trucks and buses in the market as demand peaks and energy woes, not to mention the increasing competition that could have a price play.
These challenges will remain a concern for the company despite its existing presence in the market. Its focus should be on marketing to key target audiences and doubling down on costs that are in the company's control.

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Hinopak Motors Ltd

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Rs (mn)                    Q1 ending     Q1 ending

                            June 2016      June 2015         YoY

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Sales                         5,625.3        3,865.2         46%

Cost of Sales                 5,007.5        3,148.8         59%

Gross Profit                    598.7          716.3        -16%

Distribution cost                85.5           89.6         -4%

Administrative cost              94.9           88.0          8%

Finance (cost) or income      (299.7)           54.8

Profit before taxation          178.8          613.1        -71%

Taxation                        105.2          231.8        -55%

Profit after tax                 73.5          381.3        -81%

Earnings per share (Rs)          5.93          30.75        -81%

GP margin                         11%            19%

Sales of trucks and buses       2,275          1,636         39%

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Source: Company Accounts

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Pattern of Shareholdings of Ordinary

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Shares (as at March 2016)        Shareholders   Shares         %

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Toyota Tsusho Corporation, Japan      1      3,678,833       30%

Hino Motors Ltd, Japan                1      7,357,665       59%

General Public                    1,309        613,466     4.95%

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