FFBL also didn’t announce any dividend vs. market expectation of PKR2.1/sh

Fauji Fertilizer Bin Qasim Ltd (FFBL) has posted unconsolidated NPAT of PKR241mn (EPS: PKR0.19) for 4QCY21, much lower than our expected NPAT of PKR4.46bn (EPS: PKR3.46). The key deviation was an allowance for expected credit losses of PKR4.25bn on loan payments and markups accrued on FML and FFL. FFBL also didn’t announce any dividend vs. our expectation of PKR2.1/sh.

On a consolidatd basis, FFBL has posted net profits of PKR3.28bn (EPS: PKR2.54) in 4QCY21, which takes CY21 net profits to PKR8.96bn (EPS: PKR6.94) as compared with profits of PKR6.45bn (EPS: PKR5.0) in CY20.

Key highlights of 4QCY21 result:

Despite the decline in DAP and Urea offtakes, by 25% and 28% yoy in 4Q, Net revenues have increased by 26% yoy to PKR42.1bn, mainly due to massive jump in prices of both DAP and Urea compared with those of last year.

Gross margins have declined by 3.7ppt yoy to 18%, mainly due to higher-than-expected realized prices of Phosphate acid during the quarter. The GMs are lower than our expectation of 22.7%.

Finance cost has witnessed significant decline of 43% yoy to PKR518mn in 4QCY21, which is attributed to a sharp decline in short-term borrowings after the rights issue last year and better cash position throughout CY21.

FFBL has booked an allowance for expected credit loss on loan payment and non-payment of markup from FML and FFL. Apart from this, the company earlier booked an impairment of PKR2.1bn on FML (shown in Other Expenses of CY21 below). These together have led to massive decline in net profits during 2HCY21.

Among other line items: (i) Distribution expenses have fallen by 19% yoy to PKR1.6bn, majorly due to lower volumetric sales, and (ii) effective tax rate in 4QCY21 has clocked in at c.93% vs c.35% in SPLY (ETR would have been 40% without the aforementioned one-off expenses).

FFBL has posted disappointing results in CY21 majorly because of one-off expenses pertaining to its loss-making subsidiaries. Going forward, we expect that elevated DAP primary margins, lower debt and possible lack of one-of expenses will help recover the company’s profitability. We have a Buy call on the scrip with a TP of PKR35/sh.

Courtesy – Intermarket Securities Limited.

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