MORNING BRIEFING

March 10, 2011

Albeit gas curtailment issues and flooding in the during 2011. However, the recent urea price hikes following Fauji Fertilizer Company
country during 2H2010, Fauji Fertilizer Company the enhanced gas curbing by the government will more than
Market Price: Kats Code:
Limited (FFC) posted strong earnings of Rs11.0bn offset the production loss to the companies especially those Rs132.35 FFC
(diluted EPS: Rs13.0) in 2010 compared to profit whose gas supply come from Mari field. FFC being one of Market Cap: Bloomberg Code:
Rs112.3bn (US$1.3bn) FFC PA
after tax of Rs8.8bn (diluted EPS: Rs10.4), up them has also avoided a complete winter gas shutdown
1-yrs Avg. Daily Volume: Reuters Code:
25%YoY. Higher urea prices and increased dividend (unlike plants on Sui Networks) and stands at a relatively 1.2mn shares, Rs154mn (US$1.8mn) FAUF.KA
income from FFBL were the major reasons for a YoY better position than other fertilizer manufacturers. 1-year High/Low:
Rs156.16/102.47
growth in the bottom line. Along with the result, FFC
Moreover, a possible acquisition of Agritech by FFC can be
announced a final cash dividend of 35% (cumulative dividend
another earnings booster for the company. FFC currently
trades at a 2011 PE of 8.6x and offers a dividend yield of Also in focus
of 130%) and a bonus issue of 25%. The scrip currently
trades at a 2011 PE of 8.6x and offers a dividend yield of
11%. We maintain a ‘Hold’ on the scrip with a target price of
11%. We currently maintain a ‘Hold’ stance on it. Exports continue to rise in Feb
Rs136.
Higher urea prices augmenting profits According to news reports, Pakistan’s exports in February
Financial highlights rose by an impressive 42%YoY to US$2.16bn. Imports in the
Despite lower offtake in the months of Aug-Sep and the
(Rs mn) 2010 2009 ∆% same period increased by 22%YoY to US$3.1bn, leading the
ongoing gas curtailment issue, FFC’s revenues grew by
Net Sales 44,874 36,163 24%
deficit to reach US$0.9bn for the month. The cumulative
24%YoY to Rs44.9bn in 2010 which offset the incremental
Cost of Sales 25,310 20,515 23%
exports for 7MFY11 too surged by 25%YoY to $15.4bn while,
cost pressures. The jump was primarily driven by higher urea
Gross Profit 19,564 15,648 25%
imports jumped by 17.3%YoY to US$25.6bn. Thus, the trade
prices (average weighted ex factory prices up 16%YoY to
44% 43%
deficit for the cumulative period now stands at US$10.2bn.
Rs814 per bag during the period). Consequently, gross Gross Margin
margins improved to 44% compared to 43% in 2009. Distribution Costs 3,945 3,175 24%
Surprisingly, FFC’s urea offtake too registered an increase of Operating Profit 15,619 12,474 25%
1%YoY to 2.48mn tons while it managed to sell 66k tons of Finance Cost 1,087 945 15%
DAP which it had imported during the year. Other Expenses 1,376 1,272 8%

Higher dividend income sustains growth Other Income 3,153 2,801 13%
Profit Before Taxation 16,310 13,057 25%
Higher dividend income (Rs2.5bn, up 32%YoY) from FFBL
Taxation 5,281 4,234 25%
helped the company’s bottom line to sustain a growth despite JS Global Capital Limited
Profit After Taxation 11,029 8,823 25%
rising distribution and other expenses. Other Income on the 6th Floor, Faysal House, Main Shahrah-e-Faisal, Karachi
Diluted Earnings per share 13.00 10.40 25%
whole increased by 13%YoY in 2010, while distribution
Source: Company accounts Research: Equity Sales:
expenses stood at Rs3.9bn, up 24%YoY, and other expenses Tel: +92 (21) 32799005 Tel: +92 (21) 32799513
rose by 8%YoY to Rs1.4bn in the same period. As a result, Fax: +92 (21) 32800163 Fax: +92 (21) 32800166
[email protected]
FFC posted earnings of Rs11.0bn (diluted EPS: Rs13.0) [email protected] [email protected]
92 (21) 111-574-111 (ext. 3099)
compared to profits of Rs8.8bn (EPS: Rs10.4) in 2010. Fixed Income Sales: Corporate Finance:
Outlook: ‘Hold’ maintained Tel: +92 (21) 32799541-44 Tel: +92 (21) 32799571
With fertilizer plants still facing gas curtailment and now at a Fax: +92 (21) 32800165 Fax: +92 (21) 32800164
higher rate of 12% and 20% (for Mari and Sui Networks, [email protected] [email protected]
respectively) we foresee a slowdown in offtake numbers JS RESEARCH IS AVAILABLE ON BLOOMBERG, CAPITALIQ &
THOMSON REUTERS
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