AKD Quotidian about — FFBL 1HCY12 Result Preview

Karachi, July 09, 2012 (PPI-OT): FFBL will be announcing its 1HCY12 result on Jul 13’12.

According to AKD Securities expects the company to post and NPAT of PkR741 million (EPS: PkR0.79) during 1HCY23, which would represent a fall of 79% over 1HCY11. However on a sequential basis AKD Securities expects the company to spring back into profit in 2QCY12, where AKD Securities forecasts FFBL’s NPAT to stand at PkR1,128 million (EPS: PkR1.21) as compared to an NLAT of PkR387 million (LPS: PkR0.41) in 1QCY12, with earnings growth primarily driven by pickup in sales. AKD Securities expects the company to announce an interim cash dividend of PkR1.0-PkR1.25 with the result. At current levels AKD Securities has a ‘Neutral’ stance on FFBL but will be looking to revisit AKD Securities’ investment case following the 2QCY12 result.

1HCY12 earnings to fall 79%YoY: AKD Securities expects FFBL to post an NPAT of PkR741 million (EPS: PkR0.79) in 1HCY12, which will represent a fall of 79% compared to last year. Lower product sales in addition to relatively weaker DAP-Phosacid primary margins are the primary factors behind the fall in earnings. Urea and DAP slaes are forecast to fall by 39%YoY and 45%YoY respectively in 1HCY12, while gross margins are expected to compress to 19.8% (-11.6pps YoY).

FFBL: 1HCY12 Result Preview
(PkR million)1HCY12FYoY2QCY12FQoQ
Net sales

11,092

-38%

9,158

373%

Gross profit

2,194

-68%

2,459

-1028%

S and A expenses

1,068

-21%

725

112%

Financial charges

642

72%

335

10%

Other charges

128

-68%

129

nm

Other income

703

4%

383

20%

Share of associate profit

245

283%

53

-72%

PBT

1,304

-76%

1,706

nm

PAT

741

-79%

1,128

nm

EPS (PKR)

0.79

-

1.21

-

Product sales (ktons)

Urea

134

-39%

126

1547%

DAP

113

-45%

89

271%

Source: Company Report and AKD Research

2QCY12 EPS expected at PkR1.21: AKD Securities expects FFBL to spring back into profit during 2QCY12 where AKD Securities forecasts the company’s NPAT to stand at PkR1,128 million (EPS:PkR1.21), as urea and DAP sales bounced back from their 1QCY12 lows. AKD Securities expects 2QCY12 GMs to stand at 26.9%, where besides the recovery in sales, declining trend in phosacid prices is also expected to improve GMs sequentially. For PMP, AKD Securities expected a significant fall in sequential profitability owing to very low DAP production in 1QCY12. Despite the improvement in cash flows, financial charges are still expected to be relatively high due to the sharp PkR depreciation during 2QCY12.

Outlook for 2HCY12: Given the seasonal pattern of DAP sales which generally pick up during the third quarter and subsequently peak in the last quarter. Resultantly, FFBL’s earnings are highly skewed towards the second half of the year. Given the weak offtake of DAP in the 1HCY12, AKD Securities expects offtake to improve going into the second half. In this regards, DAP price is scheduled to be raised by PkR100/bag, effective from Jul 10’12, where FFC has pre-announced the price hike in order to stimulate DAP sales and liquidate DAP inventory of FFBL, which despite the uptick in Jun’12 sales remains at a considerable level of ~150k tons. Despite the sales incentive, DAP demand outlook remains weak given the high prices. Case in point could be a correction in int’l DAP prices followed by a corresponding fall in local prices. In this regard, AKD Securities may witness weakness in int’l DAP prices going forward as i) global prices as measured by World Bank Food Price index touched their 5-month low in Jun’12, ii) input phosacid prices are already on the decline and iii) int’l urea prices fell sharply by US$77/ton MoM to US$420/ton (3-month low) in Jun’12, however DAP prices still held firm (+US$11/ton MoM).

Recommendation: At current levels AKD Securities has a ‘Neutral’ stance of FFBL (TP of PkR41) however AKD Securities will look to revisit AKD Securities’ investment case following the 2QCY12 results.