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Karachi, January 21, 2013 (PPI-OT): CY12 Preview: Seasonal impact flash-backs!
The Board of Directors of Fauji Fertilizer Company Limited (FFC) is scheduled to approve its annual results for CY12 on 23rd January, 2013.
According to Arif Habib Limited expects the company to post profit after tax (PAT) of PKR 21 billion (EPS: PKR 16.17), depicting a decline of 9% YoY from CY11 PAT of PKR 22 billion (EPS: PKR 17.68). Arif Habib Limited expects the company to announce a final cash dividend of PKR 5.25/share taking the total cash payout for CY12 to PKR 15.75/share. However, Arif Habib Limited does not rule out the possibility of a lower cash dividend as the company may want to retain cash for Askari Bank’s acquisition. In this scenario, a bonus issue of 20-25% is expected to compensate the lower cash dividends.
| P and L Statement (PKR million) | 4QCY12E | 3QCY12A | QoQ | CY12E | CY11A | YoY |
| Sales |
22,960 |
13,903 |
65% |
72,994 |
55,221 |
32% |
| Gross profit |
11,277 |
6,844 |
65% |
35,438 |
34,349 |
3% |
| Selling and Admin expenses |
2,394 |
1,735 |
38% |
8,059 |
7,027 |
15% |
| Other income |
1,388 |
383 |
263% |
4,229 |
6,630 |
-36% |
| Finance cost |
160 |
175 |
-9% |
976 |
786 |
24% |
| Profit before taxation |
10,111 |
5,316 |
90% |
30,633 |
33,166 |
-8% |
| Profit after taxation |
6,774 |
3,458 |
96% |
20,567 |
22,492 |
-9% |
| EPS (PKR) |
5.33 |
2.72 |
16.17 |
17.68 |
|
|
| DPS (PKR) |
5.25 |
2.50 |
15.75 |
20.00 |
|
|
| Source: Company accounts and Arif Habib Research | ||||||
Augmented sales due to expected hike in urea prices
In 4QCY12 alone, FFC is expected to post net income of PKR 6.8 billion (EPS: PKR 5.33) significantly up by 96% QoQ as compared to PKR 3.4 billion (EPS: PKR 2.72) in the previous quarter. The growth in earnings is mainly due to lofty offtake in the last quarter. Provisional fertilizer offtake figures reveal that FFC is expected to achieve a massive 69% QoQ offtake growth to 811k tons in 4QCY12. This sales growth is mainly attributable towards boosted sales in the last month (Dec-12) owing to increased gas prices from 1st Jan 2013.
Top-line to increase by 17 % YoY to PKR 73 billion
Net revenues of the company are expected to grow 32% YoY to PKR 73 billion in CY12. This is due to higher Urea prices (+17% YoY) during the period under review, which compensate the absence of any volumetric growth (FFC’s urea offtake is estimated at 2,423 kTons in CY12E versus 2,403 kTons in the last year).
Other income decline by 36% YoY
In CY12, other income, which is primarily driven from FFBL’s dividend income, is expected to record at PKR 4,229 million down by 36% YoY in comparison with the preceding year other income. This decline is mainly due to absence of FFBL dividend income in first and second quarter. In 4QCY12 alone, Arif Habib Limited expects other income to clock in at PKR 1,388 million up by 262% QoQ translating a bottom line impact of PKR 1.09/share. The massive growth in other income is mainly on account of dividend income (PKR 2.25/share) announced by FFBL in 3QCY12, which would be incorporated in FFC’s 4QCY12 other income.
Askari Bank transaction
Askari Bank acquisition transaction is on the cards. Arif Habib Limited’s industry channels suggest that, FFC is expected to take 50% stake in the above mentioned transaction and deal would possibly be finalized around PKR 24/share. Total expected outlay from FFC is about PKR 7.3 billion in this deal. Please refer to Arif Habib Limited’s Morning Call titled ‘Askari Bank deal in the finale’ dated 27 Dec-12 for detailed information.
Recommendation
Arif Habib Limited’s DCF based Jun-13 target price for the scrip works out to PKR 132.5/share, translating an upside potential of 13% from current level. The stock is trading at CY13F PER level of 7.62x while offering an attractive dividend yield of 12% based on CY13F earnings.