FFC CY10 Preview – 27% YoY jump in PAT anticipated on higher volumes!

PAT to be up 27% YoY: FFC is due to announce its CY10 financial result on 25th January’11, where we expect the company to post PAT of PKR11.2bn (EPS: PKR16.45), up 27% YoY. For 4QCY10, PAT is estimated at PKR4.1bn (EPS: PKR6.10), up 90% YoY. We also expect final dividend of PKR6.0/share in 4Q, taking CY10 payout to PKR15.5/share.

Top-line up 22% YoY despite 3% decline in volumes: Despite an expected 3% YoY decline in Urea sales to 2,383k tons during the year, we anticipate top-line to register an increase of 22% YoY primarily attributable to 12% YoY rise in average Urea price to PKR861/bag during the year.

Distribution cost/Other income up 29% YoY/5% YoY: Selling and distribution expenses for 4Q are expected at PKR1.2bn mainly due to higher sales taking the annual expenses to PKR4.1bn (+29% YoY). Moreover, we anticipate other income to increase by 5% to PKR2.9bn primarily attributable to 33% YoY increase in dividend income from FFBL to PKR2.5bn (PKR5.30/share of FFBL).

Investment perspective: At yesterday’s closing price of PKR148.6/share, the scrip is fairly valued given our DCF based December-11 PT of PKR150/share and at an expensive CY11E P/E multiple of 7.8x. Hold

Top-line up 22% YoY despite 3% decline in volumes

Despite an estimated decline of 3% YoY in Urea sales to 2,383k tons, net sales are expected to increase to PKR44bn (+22% YoY), mainly on the back of rising Urea prices. Prices witnessed a significant growth due to excess demand in a scenario where gas curtailment hampered production. Urea prices averaged PKR861/bag during CY10, up 12% YoY. For 4Q alone, we foresee net sales to register an increase of 48% YoY to PKR15.5bn mainly on the back of 1) 22% YoY increase in sales volume and 2) 20% YoY jump in average Urea prices to PKR913/bag. Furthermore, we have also incorporated 47k tons/5k tons of imported DAP/SOP in our 4Q earnings forecast.

Distribution cost/Other income up 29% YoY/ 5% YoY

Urea sales rose 22% YoY during 4Q which would likely result in higher transportation cost for the company. Resultantly, we estimate selling and distribution expenses to increase to PKR1.2bn during 4Q taking the annual number to PKR4.1bn (+29% YoY). Moreover, we anticipate other income to increase by 5% to PKR2,934mn primarily attributable to 33% YoY increase in dividend income from FFBL to PKR2.5bn. FFC received dividend of PKR5.30/share of FFBL during CY10.

Investment Perspective

At yesterday’s closing price of PKR148.6/share, the scrip is fairly valued given our DCF based December-11 PT of PKR150/share and at an expensive CY11E P/E multiple of 7.8x. Hence, we have a ‘Hold’ stance on the scrip.

Economic & Political News

Pakistan’s foreign exchange reserves jump to USD17.3bn

The country’s total liquid foreign reserves increased by USD190.7mn to reach highest-ever level of USD17.3bn because of high foreign inflows sent by overseas Pakistanis. The reserves held by SBP increased by USD219.2mn to USD13.7bn during the last week. While, foreign exchange reserves held by banks have witnessed declining trend and down by USD28.5mn, recorded at USD3.6bn.
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