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AKD Quotidian about — FFBL to post NPAT of PKR10.2bn (EPS:PKR10.89) in CY11

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by January 19, 2012 Brokerage

Karachi: FFBL will be announcing its full year CY11 results on Jan 26’2012.

According to AKD Securities expects FFBL to post NPAT of PkR10.2bn (EPS: PkR10.89) in CY11, up by an impressive 56%YoY. Earnings growth has been achieved despite a 17%YoY fall in expected urea sales to 434k tons and flat DAP sales (+1%YoY to 662k tons) as stellar margins on both products is expected to have lifted FFBL’s gross margins for CY11 to 35.4%, up by 427bps YoY, more than making up for the loss in production due to gas curtailment. Furthermore, higher other income (+22%YoYto PkR1.4bn) is expected to boost the bottom-line growth. AKD Securities expects the company to announce a final dividend of PkR3/share with the result which will take full year payout to PkR9.50/share.

 

FFBL: CY11 Result Preview
(PKR million)CY11EYoY4QCY11EQoQ
Net sales55,38728%19,0664%
Gross profit19,60246%5,846-14%
S&A expenses3,4535%1,050-1%
Financial charges1,05613%300-22%
Other income1,40422%3799%
PAT10,17156%3,001-18%
EPS (PKR) @934mn sh.0.893.21

 

4QCY11 NPAT to fall 18%QoQ: For 4QCY11, AKD Securities expects FFBL’s net earnings to fall by 18% sequentially to PkR3bn (EPS: PkR3.21) as margin compression (GMs down 663bpsQoQ to 30.7%) coupled with lower urea sales would combine to reduce earnings on QoQ basis. Factors leading to the margin compression are i) lower urea sales (-21%QoQ to 94k tons)as gas curtailment reduced production ( 18%Q0Q), although higher urea prices (+13%QoQ) would help mitigate some impact of the production loss and ii) lower DAP-Phosacid primary margins (PMs) following a US$30/ton hike in phosacid prices.

2012 Outlook: As has been mentioned before, 2012 is going to be a relatively tougher year for FFBL where AKD Securities estimates earnings to fall by 36%YoY to PkR6.6bn (EPS: PkR7.01). Factors leading to lower income are i) higher gas curtailment, ii) normalized phosacid-DAP PMs, which are expected to fall to US$200/ton, down from a record high level of US$288/ton in CY11 and iii) reduced urea pricing power owing to the declining gap between domestic and int’l urea prices as well as threat of further gas price hikes in 2HCY12. While the gas situation is unlikely to improve, AKD Securities sees upside risks to AKD Securities’ DAP-Phosacid PMs assumption, where a US$10/ton change in margins would lead to an EPS change of PkR0.33.

Recommendation: At current levels, AKD Securities has a neutral stance on FFBL, which offers limited upside of 4% to AKD Securities’ target price of PkR49/share. The scrip is trading at CY12F and CY13F PER of 6.56x and 6.64x, respectively and offers a CY12F dividend yield of 152%.

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