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Karachi, January 09, 2013 (PPI-OT): CY12 Earnings Preview: Subdued CY12 to end with ‘Excellent’ 4Q
4QCY12 to support full-year profitability
The Board of Directors of Fauji Fertilizer Bin Qasim (FFBL) is scheduled to meet on January 11, 2013 to announce CY12 financial results, where Arif Habib Limited expects the company to post a PAT of PKR 2.15 billion (EPS: 2.31) in 4QCY12, significantly up 45% QoQ.
According to Arif Habib Limited, this massive growth in 4QCY12 is mainly due to improved primary margin of DAP, leading to significantly improved gross margins (+698bps to 29%) in 4QCY12, owing to i) decline in phos-acid prices, and ii) increase in DAP prices with the commencement of the last quarter.
On full-year basis, Arif Habib Limited expects FFBL to post a PAT of PKR 4.2 billion (EPS: PKR 4.59) in CY12, a sharp decline of 60% YoY against PKR 10.7 billion (EPS: PKR 11.53) recorded in CY11. The expected decline is mainly on account of the plant shutdown in 1QCY12, and significant decline of 41% YoY in urea offtake due to persistent gas curtailment on the SSGC network during the year. Arif Habib Limited expects the company to announce a final cash dividend of PKR 2/share, taking full year’s cash payout to PKR 4.25/share.
| P and L Statement (PKR million) | 4QCY12E | 3QCY12 | QoQ | FY12E | FY11A | YoY |
| Sales |
17,277 |
17,917 |
-4% |
46,485 |
55,869 |
-17% |
| Cost of sales |
12,216 |
13,919 |
-12% |
34,994 |
35,753 |
-2% |
| Gross profit |
5,061 |
3,998 |
27% |
11,491 |
20,116 |
-43% |
| Selling and Admin expenses |
1,205 |
1,140 |
6% |
3,621 |
3,331 |
9% |
| Other income |
105 |
101 |
4% |
800 |
1,650 |
-52% |
| Finance cost |
420 |
454 |
-7% |
1,783 |
1,088 |
64% |
| Profit before taxation |
3,317 |
2,339 |
42% |
6,440 |
16,170 |
-60% |
| Profit after taxation |
2,156 |
1,487 |
45% |
4,287 |
10,767 |
-60% |
| EPS (PKR) |
2.31 |
1.59 |
4.59 |
11.53 |
|
|
| DPS (PKR) |
2.00 |
2.25 |
4.25 |
10.00 |
|
|
| Source: Company accounts and Arif Habib Research | ||||||
DAP’s Primary margins to flourish further
FFBL’s phosphoric acid contract price was settled at USD 850/ton for 4QCY12, down 5% QoQ. In addition, FFBL rose DAP prices by PKR 100/bag. Both the drivers should lead to improved primary margins on DAP, to USD 284/ton in 4QCY12, up a hefty 13% QoQ. Arif Habib Limited expects phos-acid prices to continue with their downward trend in CY13 and, thus, primary margins on DAP to flourish further.
Gas curtailment to remain critical
FFBL is facing 45% annual gas curtailment on SSGC network, due to which the company’s urea production and sales have declined significantly by 63% and 41% YoY, respectively, in CY12. In CY13, Arif Habib Limited expects gas curtailment to remain at the mentioned levels while the company is expected to keep DAP as its primary product while treating urea as a third wheel.
Investment ventures
As per Arif Habib Limited’s industry checks, FFBL is planning to invest PKR500 million in meat export business in CY13, a lucrative business with respect to margins, especially in terms of exports. Along with that, as notified earlier to the KSE, FFBL has shown its intentions to acquire Army Welfare Trust’s stake in Askari Bank Limited (AKBL) together with Fauji Fertilizer Company and Fauji Foundation Trust. Total outflow for AKBL transaction is expected to be PKR 3.7 billion, given that FFBL acquires 25% stake in AKBL at an estimated price of PKR 24/share. Both the ventures should support company’s bottom-line ahead; however, scale of earnings impact would be worked out only after detailed availability of information on these ventures.
Outlook and Recommendation
While CY12 has been quite a challenging year for the entire Fertilizer sector, Arif Habib Limited expects CY13 to be much better, at least for Faujis (FFC, FFBL), on account of improving cost-side dynamics (especially for FFBL), and investment diversifications into other lucrative businesses i.e. meet export, wind power, rural auto and banking. Further, Faujis are also relatively better-off in terms of on-going gas curtailment.
For FFBL, Arif Habib Limited’s DCF based Jun-13 Price Target for works out to PKR 41 (excluding any impact from the mentioned business ventures), translating into an upside potential of 6% from current level. The stock is currently trading at forward PER 5.9x while offering an alluring DY of 15% based on CY13E earnings.