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  Up date Pulse July 26, 2011

Update Pulse

July 26, 2011

Fertilizer

Sector:

FFC

Result

to be the main reason behind rise in monetary sales. We believe that the substantial increase in sales is likely to take gross profit of the company to PKR12.94bn posting a rise of 46% YoY as against PKR8.84bn in the same period last year. Thus FFC seems to be having higher gross margin of 53% as against 44% in 1HCY10.

BUY Market Snapshot Index Chg % KSE 30 11815.91 -101.49 -0.85 KSE 100 12394.49 -82.28
BUY
Market Snapshot
Index
Chg
%
KSE 30
11815.91
-101.49
-0.85
KSE 100
12394.49
-82.28
-0.66
KSE ALL
8590.05
-54.55
-0.63
Key Data
Market Cap(PKR bn)
Shares Outstanding (m)
Bloomberg
12M Avg. Volume (m)
138.3
848
FFC.PA
1.56
12M FFC relative performance vs KSE
183%
FFC
KSE-100
156%
129%
102%
75%
Analyst:
Muhammad Sarfraz Abbasi
Sarfraz.abbasi@summitcapital.com.pk
021-35376125
B-209, Park Towers, Clifton, Karachi
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11

Preview…

 

Synopsis…

Earnings to post a jump of 61% YoY in 1HCY11. Urea offtake witnessed a decline of 5% YoY in 1HCY11. Financial cost is expected to decline by 8% YoY in

1HCY11.

Other income to witness a substantial rise of 82% YoY. With our fair value of PKR185 for FFC, we recommend a BUY stance.

PAT is expected to rise by 61%

Fauji Fertilizer Company Limited (FFC) is scheduled to announce its 1HCY11 financial results on 29 th July 2011. As per our expectations, the company is expected to post a substantial rise of 61% YoY in PAT to PKR8.29bn translating into an EPS of PKR9.69, as against PAT of PKR5.10bn and EPS of PKR6.01 during the corresponding period last year. We also expect company to announce second interim cash dividend of PKR4.75/share.

Decline in financial charges and massive ascend in other income may further strengthen earnings

We expect distribution cost to witness an increase of 13% YoY to PKR2.10bn in 1HCY11 against PKR1.87bn in the same period last year. This upsurge in distribution cost seems to be driven by transportation charges. However, we expect operating profit to be at PKR10.99bn with an increase of 58% over the last year. We also expect other income to jack up the bottom line as it is expected to post a rise of 82% YoY to PKR2.77bn as against PKR1.26bn recorded in 1HCY10. Foremost chunk of the other income is likely to come through dividend income from FFBL.

Recommendation and outlook…

(PKR m)

1HCY10A

1HCY11E

% Chg

 

Gas curtailment of the fertilizer sector has created an interesting situation in FFC prospective as Engro raises price of urea to mitigate its production losses while FFC which is not greatly affected by the gas curtailment enjoys fruit of increased prices. This is the main reason that FFC has shown substantially higher margins during the 1HCY11. We believe, FFC would continue to enjoy greater margins until gas supply to Engro plants is resumed. In addition to this, locally produced urea is sold on a significantly discount to international urea prices. This situation is naturally building up pressure on policy makers to either facilitate the local players, or go for import. In our view, import would not be a sensible choice.

Sales

19,947

24,317

22%

Cost of Sales

11,113

11,381

2%

Gross Profit

8,834

12,936

46%

Finance Cost

494

455

-8%

Other Operating Income

1,525

2,770

82%

Profit After Tax

5,101

8,218

61%

EPS (PKR)

6.01

9.69

61%

Gross profit margin

44%

53%

Net profit margin

26%

34%

Source: Company Financials, Summit Capital Research

 

Our DCF based target price for FFC is PKR185. We recommend BUY stance.

Top line to post a substantial rise of 22% YoY

 

We expect top line to reach PKR24.32bn in 1HCY11 by posting a substantial rise of 22% YoY over last year when sales of the company were recorded at PKR19.95bn. Urea offtake of the company remained lower by 5%YoY however, sharp rise in average urea prices of about 27% is expected to

 

Disclaimer: All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of publishing. However, in view of the natural scope for human and/or mechanical error, either at source or during production, Summit Capital (Pvt.) Limited accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the publication. All information is provided without warranty and Summit Capital (Pvt.) Limited makes no representation of warranty of any kind as to the accuracy or completeness of any information hereto contained.