FFBL – Positives materializing!

32% QoQ rise in 3Q PAT take 9MCY10 earnings up 62% YoY: Fauji Fertilizer Bin Qasim Limited (FFBL) announced PAT of PKR2,931mn (EPS: PKR3.14) during 9MCY10, up 62% on YoY basis. On QoQ basis, the company posted PAT of PKR1,209mn (EPS: PKR1.29), up 32% QoQ. The company also announced DPS of PKR1.25/share for 3Q, taking 9MCY10 DPS to PKR3.05/share.

Despite lower top-line, ↑ in gross margins supported earnings growth: While top-line, dragged by lower offtake, trimmed 18% YoY, it was more than offset by a 600bps increase in gross margins (primary margins averaged at USD230/ton during 9MCY10).

Lower interest burden; Other income ↑ 64x as PMP turns black

Finance cost increased by 66% QoQ during 3Q mainly on the back of higher short term borrowings. However during the 9-month period, finance cost registered a decline of 39% YoY to PKR720mn, primarily due to repayment of the entire long term murabaha and gradual repayments of long term loan. Furthermore, other income increased to PKR821mn during 9MCY10 (from PKR13mn in the same period last year) as PMP returned to profits this year (share of profit from PMP clocked in at PKR158mn during 9MCY10, against a loss of PKR600mn last year).

Investment Perspective

FFBL is up 26% from its 3-month low (PKR26.8/share touched in Sept-10), against 9.5% increase in KSE-100, primarily due to recovery in DAP demand post floods and strong earnings performance. We continue to like FFBL as we see persistence of outperformance due to strong 4Q earnings (EPS of PKR1.71/share expected during 4QCY10). At last closing price of PKR33.7/share, the scrip trades at an attractive CY11E P/E multiple of 6.5x and CY11E dividend yield of 13%. Buy!

Healthy margins jacks up operating profits despite lower top-line

Net sales were down 18% YoY during 9MCY10 as against last year, primarily attributable to lower offtake of both Urea (-15% YoY) and DAP (-40% YoY). However, the negativity of lower top-line was more than offset by 600bps increase in gross margins to 30% during 9MCY10 as primary margins averaged at USD230/ton during 9MCY10 as against USD200/ton last year). As a result, operating profits jumped 39% YoY during the period. However, on QoQ basis, net sales increased by a significant 92% QoQ, mainly due to recovery in DAP offtake during the month of September (DAP offtake increased by 38% QoQ to 161k tons during 3Q).

Lower finance cost/ Other income ↑ 64x as PMP turns black: Finance cost increased by 66% QoQ during 3Q mainly on the back of higher short term borrowings. However, during the 9-month period, finance cost registered a decline of 39% YoY to PKR720mn, primarily due to repayment of long term debt component. Moreover, significant increase in other income triggered earnings growth further, as PMP became profitable this year.

Investment Perspective: At last closing price of PKR33.7/share, the scrip trades at an attractive CY11E P/E multiple of 6.5x and CY11E dividend yield of 13%. Buy!

Economic & Political News

55% decline in current account deficit

The country’s current account deficit has narrowed down by 55% during 4MFY11, mainly due to heavy inflows in home remittances and decline in goods and services deficit. Current account deficit declined by USD644mn, to USD533mn, during 4MFY11 as compared to USD1.177bn in the corresponding period of last fiscal year. The goods deficit posted a decline of 5% to USD3.722bn in July-October relative to USD3.93bn in same period of last fiscal year. Services trade deficit declined by 6% to USD987mn in 4MFY11 as against deficit of USD1.051bn in 4MFY10. Income sector deficit witnessed a decline of 7%, or USD62mn, to USD817mn, with USD1.066bn payments and USD249mn earnings. Overall deficit, including goods trade, services and income, stood at USD5.526bn against current account transfers of USD5.013bn in July-September.

Foreign investment down by 36%

Net foreign investment, comprising foreign direct investment (FDI) and portfolio investment, had registered a decline of USD316mn during the 4MFY11. With the current decline, net foreign investment decreased to USD569mn as compared to USD884.9mn in 4MFY11, depicting a decline of 35.7%. Portfolio investment posted a decline of 64.9% during the 4MFY11. Portfolio investment, mainly done in stock market, stood at USD101.3mn during July-October of FY11 as against USD288.5mn in corresponding period of last fiscal year, depicting a decrease of USD187.2mn. FDI posted a decline of 21.6%, or USD128.7mn, to USD467.7mn in 4MFY11 as compared to USD596.4mn in same period of last fiscal year. There was 9.5% decline in FDI during the first quarter.
Analyst Certification:
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.
Disclaimer

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.

Contributed By