1QCY11 EPS at PKR4.84; DPS at PKR4.50: Recently, FFC announced its financial result for 1QCY11, where the company posted PAT of PKR4.1bn (EPS: PKR4.84), up 51% YoY. Earnings growth primarily emanated from strong margins coupled with higher dividend income from FFBL. While earnings lagged market consensus by 8%, it was a mere 3% lower than Elixir estimates. Moreover, the company announced first interim cash dividend of PKR4.50/share.
Top-line up 17% YoY despite 13% YoY decline in volumes: Despite 13% decline in Urea sales during the quarter, top-line increased to PKR11.1bn, up 17% YoY mainly on the back of higher prices. Urea prices averaged at PKR1,113/bag, up 37% YoY during 1QCY11, while gross margins expanded more than 10% over the previous year to 53%.
Surge in other income drove earnings growth: Other income grew by 56% YoY to PKR1.9bn during 1QCY11, due to stellar CY10 final dividend (PKR3.5/share) from FFBL, booked during the quarter. Dividend income from FFBL contributed PKR1.77/share on after tax basis to FFC’s 1QCY11 EPS, as opposed to PKR1.13/share last year.
Investment perspective: At yesterday’s closing price of PKR138.8/share, the scrip trades marginally above our Dec-11 PT, with CY11E PER and dividend yield of 7.7x and 11% respectively. HOLD
Top-line up 17% YoY despite 13% YoY decline in volumes
Urea dispatches for the quarter declined by 13% YoY to 546k tons due to gas curtailment and plant turnaround. Despite decline in volumetric sales, net sales registered an increase of 17% YoY mainly on the back of higher fertilizer prices. Urea prices averaged at PKR1,113/bag, up 37% YoY during 1QCY11. However on QoQ basis, top-line plunged by 32% YoY to PKR11.1bn which was due to lower dispatches as against 4QCY10, which was the peak Rabi quarter. Higher Urea prices led gross margins to expand by 10% to 53% during 1QCY11, as opposed to 43% during the same period last year.
Surge in other income drove earnings growth
FFBL’s CY10 final dividend at PKR3.5/share was up 56% YoY, which propelled 1QCY11 other income by a similar quantum for FFC to PKR1.9bn. Dividend income from FFBL, which reflects in FFC’s earnings with a quarter’s lag, contributed PKR1.77/share on after tax basis (36%) to FFC’s 1QCY11 EPS, as opposed to PKR1.13/share (35%) last year.
At yesterday’s closing price of PKR138.8/share, the scrip is fairly valued given our DCF based December-11 PT of PKR138/share and trades at CY11E PER of 7.7x and offers CY11E dividend yield of 11%. HOLD
Economic & Political News
SBP opposes increase in tax rate on banks and insurance firms
The State Bank of Pakistan (SBP) has opposed the government’s move to increase tax rate for banks and insurance companies from 35% to 37.5%. The Federal Board of Revenue (FBR) has proposed increase in the tax rate on banks on the ground that banking spread – the difference between lending and deposit rates – has increased significantly. Currently, the average spread is 7.2% and the maximum is over 10%.
FBR wants cut in corporate income tax rate for listed companies
The Federal Board of Revenue (FBR) has proposed reduction in the upcoming budget for 2011-12, in corporate income tax rate for public listed companies from 35% to 32.5% and for private limited companies from 35% to 34%.
The research analyst(s) denoted AC on the cover of this report, primarily involved in the preparation of this report, certifies that (1) the views expressed in this report accurately reflect his/her personal views about all of the subject companies/securities and (2) no part of his/her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.
The report has been prepared by Elixir Securities Pakistan (Pvt.) Ltd and is for information purpose only. The information and opinions contained herein have been compiled or arrived at based upon information obtained from sources, believed to be reliable and in good faith. Such information has not been independently verified and no guaranty, representation or warranty, expressed or implied is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this document is not, and should not be construed as, an offer, or solicitation of an offer, to buy or sell any securities or other financial instruments.
Research Dissemination Policy
Elixir Securities Pakistan (Pvt.) Ltd. endeavors to make all reasonable efforts to disseminate research to all eligible clients in a timely manner through either physical or electronic distribution such as mail, fax and/or email. Nevertheless, not all clients may receive the material at the same time.
Company Specific Disclosures
Elixir Securities Pakistan (Pvt.) Ltd. may, to the extent permissible by applicable law or regulation, use the above material, conclusions, research or analysis in which they are based before the material is disseminated to their customers. Elixir Securities Pakistan (Pvt.) Ltd., their respective directors, officers, representatives, employees and/or related persons may have a long or short position in any of the securities or other financial instruments mentioned or issuers described herein at any time and may make a purchase and/or sale, or offer to make a purchase and/or sale of any such securities or other financial instruments from time to time in the open market or otherwise. Elixir Securities Pakistan (Pvt.) Ltd. may make markets in securities or other financial instruments described in this publication, in securities of issuers described herein or in securities underlying or related to such securities. Elixir Securities Pakistan (Pvt.) Ltd. may have recently underwritten the securities of an issuer mentioned herein.
Other Important Disclosures
Foreign currency denominated securities is subject to exchange rate fluctuations which could have an adverse effect on their value or price, or the income derived from them. In addition, investors in securities such as ADRs, the values of which are influenced by foreign currencies effectively assume currency risk. Foreign currency denominated securities is subject to exchange rate fluctuations which could have an adverse effect on their value or price, or the income derived from them. In addition, investors in securities such as ADRs, the values of which are influenced by foreign currencies effectively assume currency risk.