Karachi, November 08, 2012 (PPI-OT): FFBL conducted analyst briefing yesterday to discuss 9MCY12 result and update us on their future plans.
According to AKD Securities, FFBL earnings rebounded sharply in 3QCY12 to PKR 1.5 billion (EPS: PKR 1.59), up 44%QoQ. Sequential improvement in earnings was registered on the back of volumetric growth in sales with DAP offtake up 2.97x to 255k tons, however 9MCY12 earnings were down by 7O%YoY to PKR 2.1 billion (EPS: PKR 2.28) on lower sates and margin compression. The company also shared its future plans relating to the meat processing business and investment in AKBL (FFBL’s share likely to be financed through debt). While AKD Securities still awaits details on the meat exporting business, AKD Securities views it as a very attractive proposition.
Analyst Briefing key takeaways: FFBL conducted analyst briefing yesterday to discuss 9MCY12 result and update us on their future plans. FFBL earnings rebounded sharply in 3QCY12 to PKR 1.5 billion (EPS: PKR 1.59), up44%QoQ. Sequential improvement in earnings was registered on the back of volumetric growth in sales with DAP offtake up 2.97x to 255k tons, on inducement of PKR 100/bag cut in DAP price offered at the end of Sep’12, however urea sales remained low (-56%QoQ to 58k tons). For 9MCY12, earnings were down by 70%YoY to PKR 2.1 billion (EPS: PKR 2.28), where earnings were hit by i) lower sales (urea and DAP down by 42%YoY and 14% YoY respectively), which was due a combination of low product availability (gas curtailment) and demand, ii) margin compression and iii) higher financial charges (+80%YoY). On enduring issue of gas curtailment, management was pessimistic on any concrete resolution in near term with expectation of at least 40% gas curtailment in CY13. Mgmt. also shared its plan to diversify into the meat processing business; however they did not provide any specific details. Moreover, management hinted towards the use of debt to acquire AKBL from Army Welfare Trust (AWT) as part of the Fauji Group (FFC, FFBL and Fauji Foundation) bid. PMP operations are expected to remain under pressure as lack luster demand and primary margin contraction (higher sulphur prices) will keep a check on profitability. On urea demand side, management has revised down its expectation of industry offtake to 5.6 million tons where AKD Securities believes that CY12 offtake is likely to fall short of the 5.6 million ton mark in the absence of any substantial cut in price as was witnessed in Jun’12. While FFBL has sold almost all of its urea production in 9MCY12, DAP inventory is also expected to swiftly come down in the 4QCY12 amidst strong demand during the wheat sowing season. Currently, AKD Securities has `Hold’ stance on the scrip which is trading near AKD Securities’ target price of PKR 42/share.
Why meat exports? FFBL is planning to enter into the meat, specifically beef exporting business as the company aims to take advantage of the largely untapped meat processing potential of Pakistan. Pakistani meat exports have been growing a healthy pace. As per SBP, meat exports grew at a 5-yr CAGR of 39% to reach 231 million in CY11. Case in point for beef exports could be neighboring India, which is likely to become the world’s largest beef exporter in 2012, over taking Australia and Brazil in the process. USDA estimates Indian beef export to reach 1.5 million tons (Pakistan’s total meat exports for FY12 were just 55k tons), while its major export destinations are in South Asia, particularly Vietnam. Global beef prices have also been rising, mostly due to the US draught.