FFC – Strong 1Q likely due to dividend income from FFBL!

Higher Urea prices to offset lower volumetric sales in 1QFY11; Urea prices, excluding post Mar 15 GST impact, averaged PKR1,020/bag during 1QCY11, up 25% YoY. Volumetric sales on the other hand, will likely fall 4% YoY in 1Q due 12% gas curtailment.

Higher dividend income from FFBL to support 1Q earnings: FFC will likely book PKR1.7bn in dividend income from FFBL during 1QFY11, reflecting full year CY10 dividend, up 22% YoY, a key contributor to expected YoY EPS growth during 1Q. Our initial estimates suggest 1QCY11 EPS for FFC between PKR4.7-4.9, up 46%-52% YoY, while we expect 1st interim dividend at PKR4.0/share.

Earnings and PT revision: We have revised up our CY11-13 earnings forecast for FFC by 11%-12% mainly on the back of fertilizer price revision. We expect Urea margins to increase by 35% YoY to USD240/ton in CY11. As a result, our Dec-11 PT for FFC is revised upwards to PKR136/share. At last closing price, the scrip trades at CY11E P/E multiple of 8.0x and offers CY11E dividend yield of 11%.

Higher Urea prices to offset lower volumetric sales in 1QFY11

Urea prices, excluding post Mar 15 GST impact, averaged PKR1,020/bag during 1QCY11, up 25% YoY. Imposition of 17% GST led prices to rise by 17% to PKR1,200/bag in Mar-11. Volumetric sales on the other hand, will likely fall 4% YoY in 1Q due 12% gas curtailment. FFC’s urea sales during Jan-Feb’11 were down 4% YoY. Hence, we remain firm with our full year volumetric decline expectation of 10% YoY and full year anticipated top-line growth of 11% YoY for FFC.

Higher dividend income from FFBL to support 1Q earnings

FFC will likely book PKR1.7bn in dividend income from FFBL during 1QFY11, reflecting full year CY10 dividend, up 22% YoY, a key contributor to expected YoY EPS growth during 1Q. CY10

final payout from FFBL was up 55% YoY and shall be the key contributor to 1QCY11 EPS growth. 1QCY11 dividend income shall form 49% of our full year expected dividend income for FFC. Our initial estimates suggest 1QCY11 EPS for FFC between PKR4.7-4.9, up 46%-52% YoY, while we expect 1st interim dividend at PKR4.0/share.

Earnings and PT revision

Revising our fertilizer price assumption we have revised our CY11-13 earnings forecast for FFC by 11%-12%. We expect Urea margins to increase by 35% YoY to USD240/ton in CY11. As a result, our Dec-11 PT for FFC is revised upwards to PKR136/share. At last closing price, the scrip trades at CY11E P/E multiple of 8.0x and offers CY11E dividend yield of 11%.

Economic & Political News

Parco board Okays Khalifa oil refinery project

The Board of Directors of the Pak Arab Refinery Limited (Parco) on Wednesday gave the go ahead to sign a ‘participation agreement’ with Abu Dhabi oil giant, International Petroleum Investment Company (IPIC), to kick off work on the multi-billion dollars Khalifa Coastal Oil Refinery (KCR) project in Balochistan. The proposed refinery will have a capacity to refine 13mn tons of petroleum products per annum and the government of Pakistan has allotted 1000 acres of land for the project. The proposed Khalifa Refinery with an output capacity of 250,000 barrel per day (bpd) is expected to cost USD6bn. IPIC and other UAE government institutions will have the majority shareholding ie 74%, whereas Parco will have 26% shares. Parco itself is a joint venture between Pakistan and UAE.

IMF to be briefed on taxation measures next month

Pakistan will discuss the recent taxation measures taken to meet revenue targets by the government with the International Monetary Fund (IMF) during the spring meetings (April 11-16) in Washington.
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