Pakistan Fertilizer expects big jumps in profits in 1QCY21

We expect combined earnings of IMS Fertilizer cluster to surge nearly 2x yoy to PKR13.7bn in 1QCY21. This is mainly driven by (i) higher offtake of all major fertilizers (except for FFC only), (ii) elevated DAP primary margins and Urea prices, and (iii) lower finance cost due to lower borrowings and interest rates.

Industry Urea/DAP offtake are estimated to have been c.1.4mn/0.32mn tons in 1QCY21, up 36%/51% yoy.

However, such higher sales are largely owed to low base effect and pre-buying in January 2021.

On a sequential basis, combined net profitability of IMS Universe is expected to decline by 32% qoq. Here, (i) the expected absence of revaluation gains on future GIDC payments, (ii) lower Urea and DAP offtake and (iii) normalized tax rate – are attributed.

FFC: Higher Urea prices and dividend income to offset lower sales

Despite the c.2% yoy decline in Urea offtake to c.575,000 tons in 1QCY21, we expect Fauji Fertilizer (FFC) to post 15% yoy higher profits for the quarter (NPAT of PKR4.91bn, EPS: PKR3.86); led by (i) higher Urea prices, and (ii) elevated other income owing to the PKR3.0/sh dividend announced by AKBL. Gross margins of the company are expected to clock in at 36% (flat yoy). We also expect FFC to announce an interim cash dividend of PKR3.0/sh. Our Buy stance on FFC (TP PKR136/sh) remains intact, where elevated Urea and DAP prices will increase profitability and FFC is also offering dividend yield of 12%.

EFERT: Robust offtake will boost profitability

Engro Fertilizer (EFERT) is expected to post 1QCY21 NPAT of PKR3.89bn (EPS: PKR2.91), up 5.8x yoy. Net Sales will increase by 1.3x yoy owing to massive jump in Urea sales to c.598,000 tons (up 2.5x yoy), due to abnormally low sales in 1QCY20. Nonetheless, gross margins of EFERT will thus increase by about 4ppt yoy to c.38% in 1QCY21. We also expect EFERT to announce an interim cash dividend of PKR2.75/sh. We have a Buy stance on EFERT (TP PKR75/sh), where we flag a CY21f dividend yield of 16%.

FFBL: DAP offtake and primary margins on the rise

We expect Fauji Fertilizer Bin Qasim (FFBL) to post an unconsolidated NPAT of PKR1.01bn (EPS: PKR0.78) in 1QCY21 as compared with a NLAT of PKR3.05bn (LPS: PKR2.32) same period last year. The core profitability of FFBL is likely to jump significantly in 1Q due to (i) massive increase in international DAP primary margins and local prices, and (ii) despite 1.5mths’ long shutdown of plant due to nonavailability of gas, DAP offtake is expected to increase by 8% yoy to c.116,000 tons, and (iv) lower finance costs (likely to fall by 54% yoy). On a consolidated basis, earnings are likely to improve in comparison with the previous few quarters, as gross margins of Fauji Foods (FFL) will probably expand given recent price increases and launch of new products. Meanwhile, losses of Fauji Meat will also be curtailed, in our view. We have a Buy stance on FFBL (TP PKR35/sh), where key catalysts are elevated DAP primary margins, lower finance cost and lack of one-off impairment previously booked on Fauji Foods and Fauji Meat.

FATIMA: Higher offtake will improve earnings

Fatima Fertilizer (FATIMA) is expected to post 1QCY20 NPAT of PKR3,86bn (EPS: PKR1,84), up 57% yoy, The higher profitability will be led by (i) more than doubling of CAN/NP sales yoy, and (ii) about 63% lower finance cost, Higher NP and CAN prices will also elevate profitability of the company, We have a Neutral stance on the company with a TP of PKR30/sh.

Courtesy –  Intermarket Securities Limited.

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