FFBL – 1HCY11 earnings match expectation

1H EPS recorded at PKR3.76, in line with expectations: FFBL posted PAT of PKR2bn (EPS: PKR2.09) for 2QCY11, up 114% YoY and in line with our expectation (we expected EPS at PKR2.07). This translated into 1HCY11 PAT of PKR3.5bn (EPS: PKR3.76), up 104% YoY. Moreover, the company announced second interim DPS of PKR2.25 taking total payout for 1H to PKR3.50.

Higher prices and DAP dispatches triggering top-line growth: Despite a decline in Urea offtake to 220k tons during 1HCY11, down 15% YoY, net sales for 1H registered an increase of 51% YoY to PKR18bn emanating from higher fertilizer prices and strong dispatches of DAP. Similarly, top-line witnessed an increase of 86% YoY to PKR9.9bn during 2QCY11.

Higher DAP primary margins during 1H propped up bottom-line: Gross margins for the period surged by 630bps to 38.5% as DAP primary margins prevailed at healthy levels of USD340/ton. However, expecting a decline in 2HCY11 on the back of rising phos-acid prices we assume CY11E DAP primary margins at USD280/ton.

Investment perspective: At yesterday’s closing price of PKR46.8/share, the scrip offers an upside of 10% to our June-12 PT of PKR51/share. Trading at CY12E P/E multiple of 5.7x and CY12E dividend yield of 16%, we have a ‘Buy’ stance on the scrip. BUY!

Higher prices and DAP dispatches triggering top-line growth

Urea dispatches during 1HCY11 declined by 15% to 220k tons mainly on the back of lower availability due to gas cuts. Despite decline in Urea volume, top-line registered an increase of 51% YoY to PKR18bn primarily attributable to 1) 29% YoY jump in DAP offtake to 205k tons and 2) Hike in Urea and DAP prices to PKR1,130/bag (+35% YoY) and PKR3,400/bag (+33% YoY) respectively – net of sales tax. Similarly, top-line witnessed an increase of 86% YoY to PKR9.9bn during 2QCY11.

Higher DAP primary margins during 1H propped up bottom-line

The company posted gross margins at 42% during 2QCY11, up 410bps YoY translating in gross profit of PKR4.2bn, mainly on the back of higher DAP primary margins of USD350/ton during 2Q.  Similarly, gross margins were recorded at 38.5% during 1HCY11, up 630bps taking 1HCY11 gross profit to PKR6.9bn as during 1H DAP primary margins averaged USD340/ton. However, expecting a decline in 2HCY11 on the back of rising phos-acid prices we assume average CY11E DAP primary margins at USD280/ton.

Investment perspective

At yesterday’s closing price of PKR46.8/share, the scrip offers an upside of 10% to our June-12 PT of PKR51/share. Trading at CY12E P/E multiple of 5.7x and CY12E dividend yield of 16%, we have a ‘Buy’ stance on the scrip. BUY!

Economic & Political News

Pakistan records USD2.14bn services trade deficit

Pakistan recorded USD2.14bn services trade deficit in 2010-11, up by 25.88% from USD1.7bn shortfall recorded in the previous year.

Govt borrows PKR122.13bn through T-bills auction

The government borrowed PKR122.13bn on Wednesday through an auction of the market treasury bills of 3, 6- and 12-month maturities. The target for the T-bills was set at PKR120bn.
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