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Morning Call about Fauji Fertilizer Bin Qasim Limited – Arif Habib Limited

Karachi, October 03, 2012 (PPI-OT): Strong Sep-12 sales to prop up bottom line

DAP sales in Sep-12 to boost up profitability
As per the industry channels, Fauji Fertilizer Bin Qasim Limited (FFBL) has sold around 178k ton of DAP in the last week of September 2012, compared to 10k tons sold in the first three weeks.

According to Arif Habib Limited, pre buying from dealers in anticipation of a price hike was the major reason for this buying spree. This has resulted in cumulative 3QCY12 DAP sales to 255k tons, a massive 196% QoQ and 18% YoY improvement.

FFBL expected to post EPS of PKR 1.55 in 3QCY12
In 3QCY12 Arif Habib Limited expects FFBL to post profit after tax (PAT) of PKR 1,444 million (EPS: PKR 1.55) in comparison to PKR 1,030 million (EPS: PKR 1.10) in 2QCY12, a stunning growth of 44% QoQ. This is mainly on account of whopping increase in DAP offtake with the growth of 196% QoQ standing at 255k tons in 3QCY12.

Dividends likely to be announced
Fauji Fertilizer Bin Qasim Limited (FFBL) has a history of announcing dividends every quarter. However during CY12TD, the company was unable to announce any distribution due to lower profitability. Arif Habib Limited expects the company to declare an interim cash dividend of PKR 1-1.25 per share, while approving the financials of 3QCY12.

Recent increase in DAP prices to magnify profitability in 4QCY12
FFBL has increased its DAP price by PKR 100/bag right at the start of 4QCY12; the quarter, where DAP demand remains the highest during the year. This strategic move will ensure even stronger earnings in 4QCY12 of PKR 1.84/share taking full years EPS to PKR 4.09/share.

Recommendation
From last closing of PKR 39.17 per share, the scrip of FFBL offers an upside potential of 5.9% to our Dec-12 DCF based target price of PKR 41.5 per share. The stock is currently trading at a CY12E PER of 9.5x and offers a dividend yield of 7.7%. Thus, Arif Habib Limited recommends a ‘Hold’ stance on the scrip.

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