Morning Call about – FFBL, ENGRO to post recovery in earnings in 1HCY13 – Arif Habib Limited

Karachi, June 28, 2013 (PPI-OT): As per 26-days provisional fertilizer off take available with us, extrapolated to 30 days, urea sales were meagrely up 2% MoM to stand at 493k tons in Jun’13.

According to Arif Habib Limited however, this figure is down 52% on a YoY basis due to high-base of Jun’12 sales. During 1HCY13, the cumulative sales declined 4% YoY. FFC and FFBL’s urea off take plunged by 20% MoM to stand at 212k tons, while ENGRO sales were down 15% MoM to 104k tons. On the other hand, FATIMA’s sales doubled MoM to 60k tons in Jun’13. NFML’s sales in the month of Jun-13 also recovered and clocked in at 90k tons, surging by a huge 185% MoM.

The decline in the urea off take is due to high-base effect of Jun’12, which was due to piled up inventories by all the manufacturers, and they offloaded it in Jun`12 with some discounts as well. Currently, as there is no massive pile-up inventory of urea with the local producers, they only managed to sell at their maximum operational capacities for a month. Closing inventory of urea available with the local producers, as of 26-Jun- 13, stood at 99k tons while total urea closing inventory (both local and imported) was recorded at 227k tons.


Fertilizer off take (Ktons)   Jun-13   Jun-12   YoY   May-13  MoM   1HCY13  1HCY12  YoY
Urea                            493     1,029  -52%    485     2%    2,633   2,747  -4%
DAP                             104        96    8%     80    30%      377     269  40%
CAN                              60       117  -48%     62    -3%      244     248  -1%
NP                               22        52  -58%     40   -46%      161     174  -8%

Company off take (Ktons)      Jun-13   Jun-12   YoY   May-13  MoM   1HCY13  1HCY12  YoY
Urea 
FFC and FFBL                     212      587  -64%    266   -20%    1,295   1,274   2%
ENGRO                            104      223  -53%    123   -15%      575     397  45%
FATIMA                            60      128  -53%     30   100%      170     170   0%
NFML                              90       67   34%     32   185%      491     770 -36%
DAP
FFBL                              63       42   50%     54    18%      244     110 122%
ENGRO                             20       22   -9%     13    51%       66     101 -35%
Source: AHL Research
 

DAP sales up 30% MoM, 40% YoY in 1HCY13
DAP’s sales surged 30% MoM to stand at 104k tons in Jun’13, while during 1HCY13, DAP sales jumped 40% YoY. FFBL managed to sell 63k tons of DAP in the month of Jun-13, up 18% MoM and substantial 122% YoY in 1HCY13. ENGRO’s DAP sales also showed enormous improvement with 51% MoM increase to stand at 20k tons whereas cumulative sales during 1HCY13 were still down 35% YoY. As per Arif Habib Limited discussions with industry, DAP sales for Jun`13 were on targets as set by the companies. DAP closing inventory as of 26-Jun-13 recorded at 274k tons (FFBL and ENGRO held ~144k and 24k tons, respectively).

CAN and NP sales slowdown by 3% and 46% MoM, respectively After showing continued positive growth, CAN sales declined with 3% MoM in Jun’13 while 1% YoY in 1HCY13, to stand at 60k tons in Jun’13. NP sales in the month on Jun-13 was recorded 22k tons, huge decline of 46% MoM while the cumulative sales were down 8% YoY during 1HCY13. The closing inventory of CAN as of 26-Jun-13, recorded at 52k tons.

Initial earnings estimates and recommendation
With these provisional off take figures, Arif Habib Limited expects FFC, FFBL and ENGRO to post EPS of PKR 3.75, PKR 2.05 and PKR 0.42, respectively for 2QCY13. However, these estimates are based on provisional off take numbers and are subject to adjustments once the final off take figures become available.


Scrips   2QCY13   1QCY13  QoQ  2QCY12  YoY  1HCY13  1HCY12  YoY   T.P  Upside
FFC       3.75     3.86   -3%   5.08  -26%    7.61   8.12   -6%   129   19%
FFBL      2.05     0.53  287%   1.10   86%    2.58   0.69  274%    46   21%
ENGRO     0.42     0.60  -30% (0.29)   n.m    1.02 (1.61)   n.m   206   69%
Source: AHL Research
 

Currently, Arif Habib Limited has a ‘Buy’ recommendation on FFC, FFBL and ENGRO with Dec-13 price objectives of PKR 129/share, PKR 46/share and PKR 206/share, respectively.

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