A review of Frieslandcampina Engro Pakistan’s performance in 9MCY21

FCEPL has reported 3QCY21 NPAT of PKR544mn (EPS: PKR0.71), a massive jump from PKR29mn (EPS: PKR0.04) SPLY. This takes 9MCY21 NPAT to PKR1.96bn (EPS: PKR2.55), up over 6x yoy. The result is however lower by 37%qoq primarily due to seasonality.

3QCY21 Key result highlights include:

FCEPL continues to report record sales – rising 15%yoy to PKR14.0bn. This is led by strong volumetric growth in all categories – particularly Olpers, complemented by strong marketing campaigns on conversion awareness and a narrowing delta vs. loose milk. Packaged milk producers have yet to pass on the impact of recent inflation, while loose milk players have indicated to increase prices by c. PKR40-50/ltr.

FCEPL took its last price increase in February 2021; this, together with reliefs granted under the Federal Budget FY22 (translating July onwards), allowed gross margins to rise to 15.9% in 3QCY21 vs. 11.5% SPLY. However, gross margins have dipped sequentially from 21.4% in 2Q due to higher costs during lean season.

Distribution and marketing expenses have increased 21%yoy, but FCEPL has managed to maintain the same at c. PKR1.0bn/qtr in the 9M period. Distribution expenses as a percentage of sales continue to dip, dropping under 8% in 3Q vs. c. 9% in 1Q.

FCEPL performance remains on track, where impressive sales momentum, leadership within UHT and consistently growing margins firm up our liking. We think the ongoing price differential between packaged and loose milk should accelerate conversions – particularly as the recent zero rating regime provides room to packaged milk producers to maintain prices at existing levels a little longer.

We have a Target Price of PKR110/sh where we maintain our Neutral rating.

Courtesy – Intermarket Securities Limited.

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