We anticipate 54% YoY growth in PAT during CY10: FFBL is expected to announce its CY10 financial result on January 25, 2010, where the company is expected to post PAT of PKR5,830mn (EPS: PKR6.24), up 54% on YoY basis. For 4QCY10, PAT is estimated at PKR2,899mn (EPS: PKR3.10), up 140% QoQ. We also expect final dividend of PKR2.35/share in 4Q, taking CY10 payout to PKR5.40/share.
Top-line up 19% YoY; Gross margins up 370bps YoY: Despite an anticipated decline in Urea/DAP annual offtake by 19%/7% to 511k/656k tons, surge in Urea and DAP prices led top-line to grow by 19% YoY. Moreover, we estimate 370bps increase in gross margins to 30%, mainly attributable to healthy DAP primary margins during the year (average DAP primary margin recorded at USD287/ton, up 29% YoY).
Profit from associate and easing interest cost to support earnings growth: FFBL’s profitability is expected to get further support from 1) 68% YoY jump in other income emanating from share of profit from PMP (PMP share of profit estimated at PKR287mn as against a loss last year) and 2) 27% YoY decline in finance cost to PKR1,070mn in CY10 as a result of repayment of loan.
We have a ‘Hold’ stance on the scrip: At yesterday’s closing price of PKR39.1/share, the scrip is fairly valued with our DCF based December-11 PT of PKR40/share. Hold!
Top-line up 19% YoY; Gross margins up 370bps YoY
We estimate Urea and DAP offtake to decline to 511k tons (-19% YoY) and 656k tons (-7% YoY) respectively. However, excess demand in a scenario where gas curtailment hampered production, prices witnessed a significant growth (Urea and DAP prices increased to PKR861/bag and PKR2,670/bag, up 12% YoY and 32% YoY respectively). Consequently, net sales of the company registered an increase of 19% YoY to PKR43,567mn. Simultaneously, we
estimate 370bps increase in gross margins to 30%, mainly attributable to healthy DAP primary margins during the year (average DAP primary margin recorded at USD287/ton, up 29% YoY) triggering earning growth during the year.
Profit from associate and easing interest cost to support earnings growth
We expect other income for the period to witness a phenomenal increase to stand at PKR1,150mn (as against PKR683mn last year), out of which share of profit from Pak Maroc Phosphore (PMP) is estimated at PKR287mn during CY10 as against a loss of PKR315mn booked in last year. Furthermore, repayment of both long term and short term loans during the period leads us to anticipate a 27% YoY decline in finance cost to PKR1,070mn, which shall further trigger earnings growth.
Investment Perspective – We have a ‘Hold’ stance on FFBL!
At yesterday’s closing price of PKR39.1/share, the scrip is fairly valued given our DCF based December-11 PT of PKR40/share. Hence, we recommend investors to book gains in case of any further excitement in the share price. Hold!
Economic & Political News
July-November LSM growth posts 2% YoY decline
Large Scale Manufacturing (LSM) growth posted a decline of over 2% YoY in 5MFY11 due to high interest rate and slow consumption on domestic front. Since August 2010 LSM growth is showing a downward trend and after registering a 1.5% YoY decline in 1QFY11, it has further reduced to over 2% in July-November of FY11.
Analyst Certification:
The research analyst(s) denoted AC on the cover of this report, primarily involved in the preparation of this report, certifies that (1) the views expressed in this report accurately reflect his/her personal views about all of the subject companies/securities and (2) no part of his/her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.
Disclaimer
The report has been prepared by Elixir Securities Pakistan (Pvt.) Ltd and is for information purpose only. The information and opinions contained herein have been compiled or arrived at based upon information obtained from sources, believed to be reliable and in good faith. Such information has not been independently verified and no guaranty, representation or warranty, expressed or implied is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this document is not, and should not be construed as, an offer, or solicitation of an offer, to buy or sell any securities or other financial instruments.
Research Dissemination Policy
Elixir Securities Pakistan (Pvt.) Ltd. endeavors to make all reasonable efforts to disseminate research to all eligible clients in a timely manner through either physical or electronic distribution such as mail, fax and/or email. Nevertheless, not all clients may receive the material at the same time.
Company Specific Disclosures
Elixir Securities Pakistan (Pvt.) Ltd. may, to the extent permissible by applicable law or regulation, use the above material, conclusions, research or analysis in which they are based before the material is disseminated to their customers. Elixir Securities Pakistan (Pvt.) Ltd., their respective directors, officers, representatives, employees and/or related persons may have a long or short position in any of the securities or other financial instruments mentioned or issuers described herein at any time and may make a purchase and/or sale, or offer to make a purchase and/or sale of any such securities or other financial instruments from time to time in the open market or otherwise. Elixir Securities Pakistan (Pvt.) Ltd. may make markets in securities or other financial instruments described in this publication, in securities of issuers described herein or in securities underlying or related to such securities. Elixir Securities Pakistan (Pvt.) Ltd. may have recently underwritten the securities of an issuer mentioned herein.
Other Important Disclosures
Foreign currency denominated securities is subject to exchange rate fluctuations which could have an adverse effect on their value or price, or the income derived from them. In addition, investors in securities such as ADRs, the values of which are influenced by foreign currencies effectively assume currency risk. Foreign currency denominated securities is subject to exchange rate fluctuations which could have an adverse effect on their value or price, or the income derived from them. In addition, investors in securities such as ADRs, the values of which are influenced by foreign currencies effectively assume currency risk.
Contributed By
