FFBL – CY10 earnings exceed expectation!

PAT up 72% YoY in CY10: FFBL yesterday announced its CY10 financial result, where the company registered 72% YoY growth in PAT to PKR6.5bn (EPS: PKR6.97). During 4Q, PAT was recorded at PKR3.6bn (EPS: PKR3.84), up 196% QoQ. DPS of PKR3.50 was announced as final dividend taking the yearly payout to PKR6.55/share.

Net sales up 18% YoY on higher fertilizer prices: Top-line of the company witnessed jump of 18% YoY to PKR43.3bn during CY10, primarily due to higher fertilizer prices (Urea/DAP price up 12%/32% YoY during CY10), as we estimate Urea/DAP offtake to fall by 19%/7% to 511k/656k tons during the year.

480bps hike in gross margins triggered earnings growth further: Gross margins increased to 31% in CY10 from 26% last year, up 480bps YoY on the back of healthy DAP primary margins during the year. Average DAP primary margins were recorded at USD287/ton, up 29% YoY.

Profit from associate and easing interest cost further supported profitability: Earnings growth got further support from 1) 69% YoY jump in other income emanating from share of profit from PMP and 2) 36% YoY decline in finance cost to PKR934mn in CY10.

Investment perspective: At yesterday’s closing price of PKR41.9/share, the scrip is trading at a 5% premium to our DCF based December-11 PT of PKR40/share. We maintain our estimates for now. Hold!

Top-line up 18% YoY; Gross margins up 480bps YoY

Despite an anticipated decline in Urea and DAP offtake to 511k tons (-19% YoY) and 656k tons (-7% YoY) respectively during CY10, gas curtailment combined with excess demand kept prices firm. Urea and DAP prices averaged PKR861/bag and PKR2,670/bag, up 12% YoY and 32% YoY respectively. Consequently, net sales of the company registered an increase of 18% YoY to PKR43.3bn. Simultaneously, Gross margins increased to 31% in CY10 from 26% last year, up 480bps YoY on the back of healthy DAP primary margins during the year (average DAP primary margins recorded at USD287/ton, up 29% YoY) triggering earnings growth.

Profit from associate and easing interest cost to support earnings growth

Despite PKR37mn share of losses from PMP during 4Q, PMP remained black on full year basis, with aggregate profit share standing at PKR121mn as against a loss of PKR315mn last year. Consequently, other income for the period recorded a phenomenal increase of 69% YoY to stand at PKR1.2bn. Furthermore, repayment of both long term and short term loans during the period led to a 36% YoY decline in finance cost to PKR934mn.

Investment Perspective – We maintain our estimates for now!

At yesterday’s closing price of PKR41.9/share, the scrip is trading at a 5% premium to our DCF based December-11 PT of PKR40/share. We maintain our estimates for now, which we shall review once detailed accounts are available.

Economic & Political News

Meeting 2010-2011 target: FBR required to collect over PKR871bn in the remaining 5MFY11

FBR has to collect over PKR871bn in the remaining 5MFY11 to meet the downward revised revenue collection target of PKR1,607bn. In case the revenue collection target is further revised downward to PKR1,580bn, the tax machinery would have to collect PKR844bn. FBR has provisionally collected PKR75.9bn up to January 24, 2010 and still has to collect PKR47.1bn to meet the monthly revenue collection target of PKR123bn for January 2010.
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