AKD Quotidian about — FFBL: 2QCY13 result preview and target price revision

Karachi, July 18, 2013 (PPI-OT): AKD Securities revises TP for FFBL to PkR53/share following a consistent downtrend in phosacid prices, which has brought DAP-Phosacid PM above US$300/ton.

According to AKD Securities flags CYI3 to be an outstanding year for FFBL, where AKD Securities expects the company to post NPAT of PkR8,033mn (EPS: PkR8.6), a robust growth of 85%YoY on the back of revived fertilizer demand and an 18%YoY increase in DAP-Phosacid PM, despite lower urea production due to higher gas curtailment.

In 2QCYI3, AKD Securities expects FFBL to post NPAT of PkRI,622mn (EPS: PkRI.74), a growth of 57%YoY/230%QoQ primarily led by higher DAP offtake and healthy PMs. AKD Securities also expect the company to announce a cash payout of PkRI.Slshare alongside the result. FFBL trades at a compelling CVI SF PIE of 5.1; DIV of 17.2% and provides an upside of 22% to AKD Securities reviseds TP of PkR53/share. Buy!

Phosacid contract settles lower at US$715/ton: The Indian contract price for 30CY13 has settled at US$715/ton, sequentially down by US$35/ton.

The downward trend in phosacid prices has persisted since 2QCY12 due to weak demand from India, where demand has been curbed by sharp devaluation of the currency (INR has depreciated 7.83% against the US$ in CY13TD) and winding down of phospliatic fertilizer subsidies. As a result, DAP-Phosacid primary margins are up by a sizable 32%YoY to US$302/ton.

FFBL 2QCY13 Result Preview

(PKR mn)       2QCY13F   YoY   QoQ   1HCY13F   YoY
Sales          11,657    25%   52%   19,352    71%
Gross profit    3,627    34%  120%     5275   117%
Op. expenses      882    -6%   25%    1,587    24%
Financial charges 287   -53%    8%      552   -39%
Other charges     204   270%  247%      263   383%
Other income      234    15%   33%      411   -22%
Associate profit    7    n.m   n.m     (41)  -159%
NPBT             2495   110%  234%    3,243   311%
NPAT             1622    57%  230%     2114   225%
EPS              1.74                  2.26

2QCYI3 Result Preview: As per provisional off take numbers, FFBLs 2QCY13 off take for Urea and DAP have clocked in at 79ktons (-40%Y0Y) and 146k tons (+70%YoY), where higher gas curtailment (-50% in CY1 3TD) has led to an estimated 32%YoY decline in urea production while DAP sales have revived on the back of robust demand. In 20CY13, AKD Securities expects FFBL to post NPAT of PkR1,622mn (EPS: PkR1 .74), a growth of 57%YoY.

Sequentially, AKD Securities expects earnings growth of a substantial 3.3xQoQ in 20CY13, driven by higher DAP-Phosacid PMs and sales. Notably, AKD Securities expects gross margins to increase by 10pptQoQ to 31% in 2QCY13 due to the higher PMs. For 1HCY13, AKD Securities expects the company to post NPAT of PkR2,114mn (EPS: PkR2.26), a growth of 3.25x YoY. AKD Securities expects the company to announce a cash payout of PkR1 .5/share alongside the 2QCY13 result.

TP Revision and investment perspective: Following the consistent downtrend in phosacid prices, AKD Securities has revised AKD Securities DAP-Phosacid primary margin assumption for 2HCY13 to US$300/ton from US$250/ton, where AKD Securities now expect FFBL to post NPAT of PkR8,033mn (EPS: PkR8.6) in the year, a robust increase of 85%YoY.

However, AKD Securities has maintained AKD Securities long- term PM assumption of US$250/ton going forward as AKD Securities expects a gradual recovery in phosacid prices. Moreover, after incorporating lower corporate tax rates going forward as well as lower CoE following the recent DR cut, AKD Securities has revised for FFBL to PkR53/share from PkR4I/share earlier.

AKD Securities highlights CY1 3 to be an exceptional year in terms of earnings despite lower gas supply and flag looming risks in the form of an expected hike in feedstock prices and a possibility of lower than expected payout due to the company’s diversification drive as potential downside risks. At current level, FFBL trades at a compelling Cvi 3F PIE of Six, D/Y of 172% and provides an upside of 22% to AKD Securities revised TP of PkR53/share. Buy!

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