· FFBL to witness a bumper year: Fauji Fertilizer Bin Qasim Ltd (FFBL) is expected to post 4QCY21 unconsolidated NPAT of PkR3.6bn (EPS: PkR2.78), taking the cumulative CY21 earnings to PkR9.74bn (EPS: PkR7.54) in contrast to NPAT of PkR2.2bn (EPS: PkR1.7) in same period last year (+344%YoY) despite a 10%YoY decrease in DAP offtakes. The increase in earnings is expected on the back of global fertilizer shortage, sending the prices of the commodity higher, thereby expanding the primary DAP margin. With ~60% of the DAP imported, the prices in local arena have also followed the suit. The current local price of this chemical stands at ~PkR9,800/bag. During the year, the primary DAP margins in international markets stood at an average of US$150/MT as compared to last 5-yr average of US$45/MT. Lastly, the company has already recorded PkR2bn impairment loss on Fauji Meat Limited (FML) in addition to over PkR3bn expected credit losses and ~850mn exchange losses. Hence, we expect the other expenses to stay on the lower side this quarter.
· FFC – Earnings are expected to remain on the upper end: Fauji Fertilizer Company Ltd (FFC) is expected to post earnings of PkR6.6bn (EPS: PkR5.21) in 4QCY21, taking the cumulative CY21 earnings to PkR22.5bn (EPS: PkR17.7) in comparison to earnings of PkR20.8bn (EPS: PkR16.36) in same period last year (+8%YoY). The earnings increase is expected on the back of PkR125/bag hike in urea price post GIDC elimination, pulling the gross margin to ~35%. In addition to this, we expect an increase of 30%YoY in other income attributed to i) 25%YoY higher income from financial assets, and ii) ~60% higher dividend income on the back of higher dividend from AKBL. The company is also expected to announce a final cash dividend of PkR4.15/sh, taking the full year payout to PkR14.0/sh.
· EFERT – Higher offtakes to keep the earnings upbeat: We expect Engro Fertilizer Ltd (EFERT) to post NPAT of PkR5.0bn (EPS: PkR3.79) in 4QCY21, taking the cumulative CY21 earnings to PkR19.9bn (EPS: PkR14.96) compared to PkR18.1bn (EPS: PkR13.58) in CY20, growing by 10.2%YoY. On core basis, the profitability is expected to be 21%YoY higher on the back of i) 9%YoY expected increase in urea offtakes, and ii) PkR125/bag cumulative hike in urea prices post GIDC elimination. On the contrary, the end of concessionary GSA in 2HCY21 has resulted in an adverse impact of ~PkR1.5/sh on the bottom line. Lastly, we expect a rebound in other income at PkR2.3bn (vs PkR1.7bn in CY20). The company is also expected to announce final cash dividend of PkR2.5/sh, taking full year payout to PkR14.0/sh.
· FATIMA – earnings to increase by 41%YoY: FATIMA Fertilizer Company Limited (FATIMA) is expected to post earnings to PkR3.1bn (EPS: PkR1.47) in 4QCY21, taking the cumulative CY21 earnings to PkR17.1bn (EPS: PkR8.18) in contrast to earnings of PkR13.3bn (EPS: PkR6.32) in CY20, inflating by 29.4%YoY. The increase is expected on the back of i) 37%YoY higher expected offtake in CAN, and ii) 32%YoY higher offtake in NP. Additionally, the impact of higher prices of DAP has also been passed on through NP – positive for FATIMA. Lastly, we expect the company to announce a dividend of PkR4/sh, translating into the dividend yield of ~9.4%.
Courtesy – BIPL Securities