Update Pulse

July 20, 2011

Fertilizer Preview

Sector:

FFBL

Result

balance sheet in CY10. We believe anticipated rise in other income and fall in financial charges would give a boost to the bottom line.
(P KR m) S ales Cost of Sales Gross Profit S & D expenses A dministrative expenses Operating Profit Finance Cost Other operating Expenses Other Operating Income P rofit Before Tax Taxation P rofit After Tax E PS (PKR) Gross profit margin Operating profit margin Net profit margin 1HCY10 11,919 8,083 3,837 1,091 208 2,538 332 188 493 2,511 790 1,721 1.84 32% 21% 14% 1HCY11 17,727 11,626 6,100 838 205 5,057 311 398 592 4,940 1,705 3,235 3.46 34% 29% 18%
183% 156% 129% 102% 75% Aug-10

Pakistan Research

Synopsis Fauji Fertilizer Bin Qasim Limited (FFBL) all set to announce th 1HCY11 results on Tuesday, 26 July 2011. We expect FFBL to post an enormous 88% YOY jump in Profit After Tax (PAT) to PKR3.24bn for 1HCY11 translating into an EPS of PKR3.46 against the corresponding period of last year when company had posted PAT of PKR1.72bn and EPS of PKR1.84 respectively. We also expect the company to announce a dividend of PKR1.75/share for 2QCY11. In this report we will discuss 1HCY11 earnings expectation and future outlook. Top line to post an upsurge of 49% YoY... We expect FFBL to post 49% YoY growth in its top line to PKR17.73bn in 1HCY11 as against PKR11.92bn in the corresponding period of the last year. The main reason behind this substantial growth in sales revenue is attributed to the sharp rise in prices of both urea and DAP fertilizers. Average prices of the both, urea and DAP witnessed a rise of 38% YoY and 29% YoY respectively. We expect gross profit to increase substantially by 59% YoY to PKR6.10bn against PKR3.84bn in 1HCY10. Gross profit margin is likely to be at 34% against 32% in 1HCY10. Rise in other income and decline financial charges may add further weight in earnings We expect other operating income to post an upsurge of 20% YoY to PKR592m in 1HCY11 as against PKR493m in 1HCY10. Our expectation for the rise in other income is mainly on the back of return on short term investments and cash balances as these both together share 34% of total assets on balance sheet. As far as income from PMP is concerned, we do not expect any surprise on FFBLs other income in this quarter. However, we believe, that rising phos acid and sulphur prices in international market might put a considerable impact on next quarter earnings of PMP. On the other hand, financial charges are expected to decline by 6% to PKR311m against PKR332m in 1HCY10. Expected lower financial charges are attributable to loan paybacks as the company has offloaded around PKR2.95bn loans from its

% Chg 49% 44% 59% -23% -2% 99% -6% 112% 20% 97% 116% 88%
KSE 30 KSE 100 KSE ALL Market Snapshot

HOLD
Index 11885.78 12443.54 8621.88 Chg 54.53 125.30 80.95 % 0 .46 1.02 0.95

Key Data Market Cap(PRs bn) Shares Outstanding (m) Bloomberg 12M Avg. Volume (m)

43.8 934.110 FFBL.PA 3.66

12M FFBL relative performance vs KSE

FFBL KSE-100

Source: Company Finan cials, Summit Capital Research

Recommendation and outlook We have witnessed a substantial increase in phos acid prices as these are currently hovering around US$1,050 per ton which were at US$ 980 per ton during 2QCY11. Similarly, DAP prices in international market are also on rise as these have touched US$650 per ton (FOB) mark. We expect DAP demand to witness a negative impact in case of increase in prices owning to rise in put cost going forward. As far as the urea is concerned, prevailing gap between demand and supply is favoring. However, we have witnessed a frequent increase in urea prices in local market which we believe in long would hurt purchasing power of the farmers. Our DCF based target price for FFBL is PKR52. We recommend HOLD.

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Analyst: Muhammad Sarfraz Abbasi sarfraz.abbasi@summitcapital.com.pk 021-35376125 B-209, Park Towers, Clifton, Karachi

Disclaimer: All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of publishing. However, in view of the natural scope for human and/or mechanical error, either at source or during production, Summit Capital (Pvt.) Limited accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the publication. All information is provided without warranty and Summit Capital (Pvt.) Limited makes no representation of warranty of any kind as to the accuracy or completeness of any information hereto contained.

Jul-11