8/23/2019 Foundation Research

1/3

Disclaimer: This report has been prepared by FSL. The information and opinions contained herein have been compiled or arrived at based upon information obtained from sources believed to be reliable and in good faith. Such

information has not been independently verified and no guaranty, representation or warranty, express or implied is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change

without notice. This document is for information purposes only. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this document is not, and should not be

construed as, an offer, or solicitation of an offer, to buy or sell any securities or other financial instruments. FSL may, to the extent permissible by applicable law or regulation, use the above material, conclusions, research or

analysis before such material is disseminated to its customers. Not all customers will receive the material at the same time. FSL, their respective directors, officers, representatives, employees, related persons may have a long or

short position in any of the securities or other financial instruments mentioned or issuers described herein at any time and may make a purchase and/or sale, or offer to make a purchase and/or sale of any such securities or other

financial instruments from time to time in the open market or otherwise, either as principal or agent. FSL may make markets in securities or other financial instruments described in this publication, in securities of issuers described

herein or in securities underlying or related to such securities. FSL may have recently underwritten the s ecurities of an issuer mentioned herein. This document may not be reproduced, distributed or p ublished for any purposes.

Foundation ResearchEquities

16 Apri l 2013

FFBL PA Neutral

Stock price as of Apr 15 Rs 37.6

Dec-13 target Rs 42.1

Upside/downside % 12%

Valuation Rs 42.1

- DCF based

Fertilizer Sector

Market cap Rs bn 35.0

30- ay avg turnover US$m 0.3

Market cap US$m 357Number shares on issue m 934

Investment fundamentalsYear en 31 Dec 2011A 2012A 2013E 2014E

Tota revenue m 55,869 47,911 49,558 53,040

EBIT m 17,258 8,291 9,211 8,213

EBIT Growt % 62.5 52.0 16.5 10.8

Recurring pro i m 10,767 4,338 5,380 4,828

Reporte pro it m 10,767 4,338 5,380 4,828

EPS rep Rs 11.53 4.64 5.76 5.17

EPS rep growt % 65.3 59.7 48.4 10.2

EPS rec Rs 11.53 4.64 5.76 5.17

EPS rec growth % 65.3 (59.7) 24.1 (10.2)

PE rep x 3.3 8.1 6.5 7.3PE rec x 3.3 8.1 6.5 7.3

Total DPS Rs 10.00 4.25 5.07 4.40

Total div yield % 27% 11% 13% 12%

ROA % 26.8 9.2 13.3 11.8

ROE % 79.0 25.6 36.4 31.2

EV/EBITDA x 1.8 3.4 2.8 2.9

Net e t/equity % -19.46 -34.50 -41.04 -55.17

Price/ oo x 2.6 2.5 2.4 2.3

FFBL PA rel KSE100 performance

Source: Bloomberg, Foundation Research, April 2013

(all figures in PKR unless noted)

Analyst

Shahbaz Ashraf, CFA shahbaz.ashraf@fs.com.pk

92 21 5612290-94 Ex-338

70%

90%110%

130%150%

170%

Feb-12

Apr-12

Jun-12

Aug-12

Oct-12

Dec-12

Feb-13

Apr-13

KSE FFBL

Fauji Fertilizer Bin Qasim

Higher sales turn bottom-line to blackEvent

Fauji Fertilizer Bin Qasim Ltd (FFBL) posted 1QCY13 earnings of PKR 0.53/sh,broadly above market consensus. Higher earnings are attributable to above-expected sales and optimum production of DAP. Overall the results remainedunexciting but was considerably better than 1QCY12 where the company recordedloss of PKR0.41/sh.

Not much is likely to change in 2QCY13 results in our view , which is expected toremain unexciting with higher risk of company skipping div in 2Q given AKBLtransaction is under way. At current price level, the stock is trading at 12% discountto our DCF based TP of PKR42, however, we maintain our neutral rating on thescrip.

Impact

Ferti lizer sales increased phenomenally: Owing to better gas availability,netsales of the company jumped by 298% YoY to Rs7,694mn compared toRs1,934mn in 1Q12. This massive surge in sales is due to higher urea (190%YoY) and DAP sales (111% YoY) on the back of higher urea and DAP productioncompared to corresponding period last year when production remained athistorical low levels owing to suspension of gas supply. Moreover, in 1QCY13,both urea and DAP prices decreased by 7% and 4% YoY, respectively.

Higher PM further supported the bottom line: FFBLs phos-acid contractwas settled at USD 770/ton for 1QCY13, down 9% QoQ. Hence, during theperiod DAP primary margins (PM) recorded a rise of 4% YoY and 11% QoQ to~USD293/ton, which further corroborated the bottom line. PM for DAP areexpected to hover at current level (USD293/ton) given upward sticky phosphoricacid prices. We re- iterate that FFBLs earnings are highly sensitive to DAPprimary margins. Our sensitivity analysis suggests that, for every USD10 changein primary margin translates into an annualized EPS impact of ~PKR0.45/share.

PMP operations portray a murky picture: Similar to CY12, the PMP operationsremained subdued. The company reported loss of PKR 48mn vs profit of 192mnwitnessed same period last year due to imbalance between input and output prices.

Urea production to remain flat i n CY13: During CY12, the company faced gascurtailment of 40%. Thus, urea production plunged by 36% YoY, however, DAPproduction remained at optimum level.Likewise, urea and DAP production isexpected to remain flat in CY13. To elaborate, we estimate the urea plant to run at55% and DAP to operate at 95% capacity utilization level.

Diversification plans amplified: AKBL transaction is underway where thecompany would spend ~Rs4.4bn for the acquisition (30% stake). Thus, risk of divcut in 2H increases, however, we maintain our div estimate of PKR4.50 in CY13,translating into a div yield of 12%.

In addition to this, FFBL is also working on meat export business. The feasibilitystudy has been completed; however, the location of the project is undecided. Theinvestment size of this project would be PKR3-4bn, which would be funded via mix

of debt and equity. At present, it is pre mature to assess the profitability of theventure. At ROE of 30%, and project capital structure of 60-40 debt/equity, we

PAKISTAN

8/23/2019 Foundation Research

2/3

Fauji Fertilizer Bin Qasim Ltd April 16, 2013

2 Foundation Securities (Pvt) Limited

1QCY13- Earnings Summary

Earnings Highlights (PKRmn) 1QCY12 1QCY13 YoY

Revenue 1,934 7,694 298%Gross Profit (265) 1,648 n.m

Operating Cost 342 705 1.06

Operating Profit (608) 943 n.m

Finance Cost 306 265 -13%

Income from Associate 192 (48) n.m

Other Income 320 177 -45%

Other Expenses 1 59 7819%

PBT (402) 747 n.m

Taxation (15) 256 n.m

Net Income (387) 491 n.m

EPS (0.41) 0.53 n.m

Gross Margin -14% 21%

Operating Margin -31% 12%

Tax Rate 4% 34%

Source: FS Research, Company Data, April'13

estimate PKR0.12 /sh impact on FFBL.

Earnings Revision

No change in earnings estimates.

Target Price and Price catalyst

December-13 price target: PKR42.1/share based on Discounted Cash Flow methodology.

Catalyst: Change in urea prices, DAP margins and gas curtailment

Action and recommendation

At current price level, the stock provides an upside of 12% to our DCF based target price of PKR 42.1/share. Wemaintain our neutral rating on the stock.

8/23/2019 Foundation Research

3/3

Fauji Fertilizer Bin Qasim Ltd April 16, 2013

3 Foundation Securities (Pvt) Limited

About The Company

Fauji Fertilizer Bin Qasim is the sole DAP and Granular urea producer in Pakistan. Initially named asFFC-J ordan Fertilizer Company (FJ FC), FFBL was formed on 17th Nov 1993, with FFC (30%), FF

(10%) and J PMC (10%) as main sponsors. The company was formally listed with stock exchanges inMay 1996 and commercial production commenced wef J an 2000. The company was renamed as FaujiFertilizer Bin Qasim Ltd. (FFBL) in 2003, as J ordan Phosphate Mines Co. (J PMC) had sold its entireequity in the company. FFC currently owns a 51% stake in FFBL. FFBL is listed on all the three stockexchanges of the country.