Morning Call about – FFC to post 2% higher core profits in 2QCY13 – Arif Habib Limited

Karachi, July 26, 2013 (PPI-OT): Lower other income to drag reported earnings Fauji Fertilizer Company Limited is scheduled to announce its 1HCY13 financial results on July 29, 2013.

According to Arif Habib Limited expect the company to post profit after tax (PAT) of PKR 9,126mn (EPS: PKR 7.17), a decline of 12% YoY compared to PKR 10,335mn (EPS: PKR 8.12) recorded in the same period last year. Lower other income from subsidiary (FFBL) coupled with 4% YoY decline in the local urea prices were the major reasons for the expected decline in the profitability.

Along with the results, FFC is expected to announce an interim cash dividend of PKR 3.25/share.

…however core profits to be up 2% QoQ
On a quarterly basis, Arif Habib Limited expects the company to post profit after tax (PAT) of PKR 4,217mn (EPS: PKR 3.32) down 14% QoQ. This decrease is mainly due to absence of dividend income coming from FFBL, considerable impact would be apparent in other income, which is expected to show a decline of 80% YoY in 2QCY13.

However if Arif Habib Limited adjusts the other income factor, FFC is expected to rather post a 2% QoQ increase in core earnings. Urea off take in this regard remained supportive with 7% QoQ increase in 2QCY13.

P and L Statement (PKR mn)    2QCY13E   1QCY13A   QoQ   1HCY13E   1HCY12A   YoY
Sales                         17,733     16,361    8%    34,094    36,131   -6%
Gross profit                   8,118      7,769    4%    15,887    17,317   -8%
Selling and Admin expenses     1,967      1,919    2%     3,886     3,929   -1%
Other income                     304      1,500  -80%     1,804     2,459  -27%
Finance cost                     161        178  -10%       340       641  -47%
Profit before taxation         6,294      7,173  -12%    13,466    15,206  -11%
Profit after taxation          4,217      4,910  -14%     9,126    10,335  -12%
EPS (PKR)                       3.32       3.86    -      7.17      8.12     - 
EPS (PKR) - adjusted*           3.95       3.86    -      7.81      8.12     - 
DPS (PKR)                       3.25       3.50   -7%     6.75      8.00   -16%

Source: Company Accounts, AHL Research, *For other income normalized 

Outlook and recommendation
Since FFBL has finally announced interim cash of PKR 1.75, in line with Arif Habib Limited expectations while largely against street consensus on account of additional liquidity required with respect to AKBL’s right issue subscription (FFBL’s stake is 22%), FFC’s 3QCY13 earnings are going to benefit from this. As far as gas availability is concerned, FFC stands as safest bet due to continuous gas supply from MARI gas network.

Currently, Arif Habib Limited has a ‘BUY’ rating on FFC with Dec-13 price objective of PKR 129/share. The stock is currently trading at CY13E PE of 7.1x and offering an enticing dividend yield of 13%. BUY!

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