We anticipate 54% YoY growth in PAT during CY10: FFBL is expected to announce its CY10 financial result on January 25, 2010, where the company is expected to post PAT of PKR5,830mn (EPS: PKR6.24), up 54% on YoY basis. For 4QCY10, PAT is estimated at PKR2,899mn (EPS: PKR3.10), up 140% QoQ. We also expect final dividend of PKR2.35/share in 4Q, taking CY10 payout to PKR5.40/share.
Top-line up 19% YoY; Gross margins up 370bps YoY: Despite an anticipated decline in Urea/DAP annual offtake by 19%/7% to 511k/656k tons, surge in Urea and DAP prices led top-line to grow by 19% YoY. Moreover, we estimate 370bps increase in gross margins to 30%, mainly attributable to healthy DAP primary margins during the year (average DAP primary margin recorded at USD287/ton, up 29% YoY).
Profit from associate and easing interest cost to support earnings growth: FFBL’s profitability is expected to get further support from 1) 68% YoY jump in other income emanating from share of profit from PMP (PMP share of profit estimated at PKR287mn as against a loss last year) and 2) 27% YoY decline in finance cost to PKR1,070mn in CY10 as a result of repayment of loan.
We have a ‘Hold’ stance on the scrip: At yesterday’s closing price of PKR39.1/share, the scrip is fairly valued with our DCF based December-11 PT of PKR40/share. Hold!
Top-line up 19% YoY; Gross margins up 370bps YoY
We estimate Urea and DAP offtake to decline to 511k tons (-19% YoY) and 656k tons (-7% YoY) respectively. However, excess demand in a scenario where gas curtailment hampered production, prices witnessed a significant growth (Urea and DAP prices increased to PKR861/bag and PKR2,670/bag, up 12% YoY and 32% YoY respectively). Consequently, net sales of the company registered an increase of 19% YoY to PKR43,567mn. Simultaneously, we
estimate 370bps increase in gross margins to 30%, mainly attributable to healthy DAP primary margins during the year (average DAP primary margin recorded at USD287/ton, up 29% YoY) triggering earning growth during the year.
Profit from associate and easing interest cost to support earnings growth
We expect other income for the period to witness a phenomenal increase to stand at PKR1,150mn (as against PKR683mn last year), out of which share of profit from Pak Maroc Phosphore (PMP) is estimated at PKR287mn during CY10 as against a loss of PKR315mn booked in last year. Furthermore, repayment of both long term and short term loans during the period leads us to anticipate a 27% YoY decline in finance cost to PKR1,070mn, which shall further trigger earnings growth.
Investment Perspective – We have a ‘Hold’ stance on FFBL!
At yesterday’s closing price of PKR39.1/share, the scrip is fairly valued given our DCF based December-11 PT of PKR40/share. Hence, we recommend investors to book gains in case of any further excitement in the share price. Hold!
Economic & Political News
July-November LSM growth posts 2% YoY decline
Large Scale Manufacturing (LSM) growth posted a decline of over 2% YoY in 5MFY11 due to high interest rate and slow consumption on domestic front. Since August 2010 LSM growth is showing a downward trend and after registering a 1.5% YoY decline in 1QFY11, it has further reduced to over 2% in July-November of FY11.
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