PAEL to Benefit from US-China Tariff War: Analysts
Staff Report
Islamabad: Pakistani analysts have said that PAEL seems to be one of the major beneficiaries of the US-China Tariff war.
While assessing the major implications of US tariffs on Pakistani manufacturers, we found out that PAEL seems to be one of the major beneficiaries of the US-China Tariff war” Sherman Research said in a report.
Despite the 29% Tariff imposition on Pakistani goods to the US (currently paused for 90 days), higher tariffs on Chinese goods (145%) may create additional demand for PAEL’s transformers as the company has already started exporting transformers to the US from March 2025.SYS Sees US Tariffs as an Opportunity for Growth
The Research report said that its back-of-the-envelope working suggests that for every 10% utilization of idle capacity, the transformer business generates additional annual earnings of Rs0.6/share (11% of CY25 earnings), provided we do not see dumping of goods by China. PAEL is currently trading at CY25 PE of 7.8x versus the last 3-year average PE of 9.6x.
We have not yet incorporated the impact of the US trade war with China on PAEL’s earnings,” it said adding that the US imports US$5bn worth of transformers from China China is the largest supplier of power transformers globally with annual exports of around U$45-50bn.
The US is the leading importer of Chinese transformers with annual imports of around US$4.5-5bn. The recent 145% Tariff imposition on China will render Chinese transformers more expensive which will create huge demand for new players in the US.
Just to recall, PAEL has already initiated exporting power transformers in the US from March 2025 (valuing around US$3mn). As per our discussion with the management,
PAEL has revised its export target upwards to US$50mn by the end of CY25 as the company is optimistic about this target due to rising demand from the US, as per company officials.
100% capacity utilization may generate annual export orders of US$150-200mn Because the US is a bigger market, we expect PAEL may grab a market size of US$150-200mn based on current available capacity” Sherman Research said adding that PAEL has a total capacity of producing 8,000 units of transformers per annum while the company only manufactured 2,488 units during CY2024 (capacity utilization of 31%).
Thus, for every 10% additional capacity utilization, PAEL’s annualized earnings may improve by Rs0.6 per share. In global comparison, Pakistan is relatively a smaller market with a transformer market estimated at around US$300mn.
However, China may re-adjust its export policy and dump prices at relatively cheaper rates which may impact the Pakistani transformer market as well. However, given the fact that the size of Pakistan’s market is relatively smaller, the chances of dumping into Pakistan seem very low. Moreover, Chinese transformers are currently subject to 35% anti-dumping duty.
Trading at CY25 PE of 7.9x Company has two major businesses including Home Appliance and Power Division. Due to a sharp recovery in demand following declining interest rates and improving disposable income, the company’s Home appliance business contributed earnings of Rs1.9 per share (67% of total EPS of 2.8).
Interestingly, the company’s home appliance business posted the highest profitability ever in CY24 – thanks to a recovery in volumes and record gross margins.
However, the Power Division remained the earnings damper in CY24 as earnings from this division reduced by 47%YoY in CY24. This segment posted the lowest earnings in the last 3 years. Currently, Home Appliance contributes around 58% of the revenue while the Power division contributes the rest.
