ffbl 25-01-2016
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Please Refer to last page for important disclosures and analyst certifications
Foundation Research|
Equities REK-192
25 Jan 2015
FFBL PA Neutral
Stock price as of 22 Jan Rs 47.9
Jun 16 target Rs 45.2
Upside/downside % (5.6)
Valuation Rs 45.2
- SOTP
Fertilizer
Market cap Rs bn 44.7
30-day avg turnover US$m 0.4
Market cap US$m 443 Number shares on issue m 934
Investment fundamentalsYear end 30 Dec 2014A 2015E 2016E 2017E
Tota l revenue mn 4 9,4 45 55,079 55,519 57,467
EBIT mn 7,093 6,472 5,675 6,990
EBIT Growth % (28.18) (8.76) (12.31) 23.17
Recurr ing P rofi t m 4 ,0 16 3,295 3,460 5,261
Report ed Profit m 4 ,01 6 3,295 3,460 5,261
EPS rep Rs 4.3 3.5 3.7 5.6
EPS rep growth % (28.4) (18.0) 5.0 52.0 EPS rec Rs 4.3 3.5 3.7 5.6
EPS rec growth % (28.4) (18.0) 5.0 52.0
PE rep x 11.6 14.1 13.4 8.8
PE rec x 11.6 14.1 13.4 8.8
Total DPS Rs 3.5 3.3 3.3 5.5
Total div yield % 7.0 6.5 6.5 11.1
ROA % 9.7 8.0 9.4 14.1
ROE % 31.0 24.7 26.2 39.8
EV/EBITDA x 8.2 8.6 10.4 8.6
Net de bt /e quit y % 1 44 .6 98.9 116.7 128.8
Price/book x 3.6 3.4 3.6 3.4
FFBL PA rel KSE 100 performance
Source: Blo omberg, Foundation Research, Jan 2016
(all figures in Rs unless noted)
AnalystMuhammad Awais Ashraf [email protected]
92 21 5612290 Ext 339
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FFBL KSE100
Fauji Fertilizer Bin Qasim
Phosphate subsidy – a savior Event
Timely disbursement of phosphate subsidy accompanied with better gas availability
has partially offset the drag of higher phosphoric acid (main raw material of DAP) and
gas prices on company’s profitability. We foresee the DAP sales in the coming year
would remain contingent upon disbursement of DAP subsidy given poor farmer
economics. However, crude oil below US$75/bbl would make the RLNG pricing feasible
for the company’s operations. Recent share price plunge makes us change our stance
from “Underperform” to “Neutral”.
Impact
Higher raw material cost to trim profitability: Despite higher DAP and Urea sales, we
expect profitability to trim (18% YoY). This is primarily attributed to lower DAP margins
(down 17% YoY) and higher gas prices (6% YoY feed stock & 10% YoY fuel stock). Timely
disbursement of phosphate subsidy has helped the company to post 5% YoY growth in
it’s flagship DAP segment despite tight cash position of farmers. To recall, government
has announced Rs20bn subsidy on phosphate products. While strong brand name amid
better gas availability (up 22% YoY) has helped to maintain its ground in urea segment.
Balance sheet leveraging, to meet the thrust of expansion, has further dented
profitability through higher financial charges (up 36% YoY).
LNG may bring into service underutilized levels: Being on SSGC’s network amid
plunge in oil prices make a strong case of LNG usage for fertilizer’s manufacturing
(contracted at 13.37% of crude oil). At current fertilizer prices, running on RLNG would
be feasible if crude lies below US$75/bbl and US$50/bbl for DAP and Urea respectively.
At present, the company is running at utilization levels of 119% and 55% for DAP and
Urea respectively.
Domestic agronomics to define course of prices: We foresee fertilizer prices to
remain subdued given farmer’s tight cash position amid depressed agriculture outlook.
Our view is premised on high inventory levels of rice, maize and sugarcane, and
subdued cotton demand amid slow down in China and EU. In the long run, declining
international fertilizer prices, both DAP (down ~2% YTD) and Urea (down ~35% YTD), on
the back of lower prices of agriculture commodities and reducing production cost would
further constrain local manufactures pricing power.
Earnings Revision
We revise our CY15/16 estimates by -0.4%/-10.5%, on the back of probable gas price
hike and trimmed fertilizer prices. Subsequently, we cut our June-16 TP to Rs45.2/sh.
Price Catalyst
Jun-16 price target: Rs45.2/sh based on SOTP methodology.
Catalyst: 1) Dividend income from FWE-I&II, 2) positive results of FML and NOPK and3) commencement of FPCL (118MW coal based power plant).
Action and Recommendation
Foreseeing cash constrained position of farmers amid probable gas price hike and
subdued DAP margins make us cautious towards the scrip. Sustainability of DAP sales in
CY16 would be contingent upon budgetary allocation of phosphate subsidy.
PAKISTAN
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Fauji Fertilizer Company Limited January 25, 2016
2 Foundation Securities (Pvt) Limited
About the company
Fauji Fertilizer Bin Qasim is the sole DAP and Granular urea producer in Pakistan. Initially named as FFC-Jordan Fertilizer
Company (FJFC), FFBL was formed on 17th Nov 1993, with FFC (30%), FF (10%) and JPMC (10%) as main sponsors. The
company was formally listed with stock exchanges in May 1996 and commercial production commenced wef Jan 2000. The
company was renamed as Fauji Fertilizer Bin Qasim Ltd. (FFBL) in 2003, as Jordan Phosphate Mines Co. (JPMC) had sold itsentire equity in the company. FFC currently owns a 49.9% stake in FFBL. FFBL is listed on all the three stock exchanges of the
country.
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Target price risk disclosures: Any inability to compete successfully in their markets may harm the business. This could be a result of many factorswhich may include geographic mix and introduction of improved products or service offerings by competitors. The results of operations may be materiallyaffected by global economic conditions generally, including conditions in financial markets. The company is exposed to market risks, such as changes ininterest rates, foreign exchange rates and input prices. From time to time, the company will enter into transactions, including transactions in derivativeinstruments, to manage certain of these exposures.
Analyst certi fication: The views expressed in this research accurately reflect the personal views of the analyst(s) about the subject securities or issuersand no part of the compensation of the analyst(s) was, is, or will be directly or indirectly related to the inclusion of specific recommendations or views in thisresearch. The analyst principally responsible for the preparation of this research receives compensation based on overall revenues of FoundationSecurities and has taken reasonable care to achieve and maintain independence and objectivity in making any recommendations.
Recommendations definitionsIfExpected return >+10% Outperform.Expected return from -10% to +10% Neutral.
Expected return