JS Securities Limited – Morning Briefing

Karachi, November 07, 2018 (PPI-OT): FFBL and FFL: Key takeaways from 9M2018 result analyst briefing

Fauji Fertilizer Bin Qasim Limited (FFBL) held its Analyst Briefing yesterday to discuss performance of its core business and investment portfolio.

The company for 9M2018 posted a consolidated EPS of Rs0.29, reflecting an increase of 26% YoY. On an unconsolidated basis, EPS clocked-in at Rs0.84 as compared to a loss of Rs0.14 in the same period last year.

During 9M2018, FFBL announced a dividend of Rs524mn from its Pakistan Maroc Phosphore (PMP) division (9M2017: RS107mn) which largely offset the absence of AKBL’s contribution towards other income.

Going forward, the company intends to pass on cost pressures to end consumers in both business segments.

The company expects Urea and DAP offtakes during 2018 at around 5.9m tons and 2.3mn tons, respectively.

EPS of Fauji Power Company Limited (FPCL) during 9M2018 clocked in at Rs2.52 as compared to Rs1.36 last year. The company also announced a dividend of Rs1.75, which will enhance FFBL 4Q EPS by Rs1.1.

FFBL expects the strategic sale of Fauji Foods Ltd (FFL) to be completed by 2018-end or by the beginning of 2019.

FFBL: Key Takeaways

Fauji Fertilizer Bin Qasim Limited (FFBL) held its Analyst Briefing yesterday to discuss performance of its core business and investment portfolio. To recall, FFBL has posted 26% YoY growth in consolidated EPS to Rs0.29 owing to significant improvement in core fertilizer and power businesses. We present key takeaways from the Briefing as follows:

Overview of DAP and Urea dynamics: Industry DAP offtakes during 9M2018 declined by 3% YoY to 1.2mn tons as compared to 1.3mn tons owing to higher DAP prices. Local production witnessed an attrition of 9% YoY, while imports increased by 29% YoY. Decline in domestic production was due to unavailability of Phosphoric acid on account of ongoing maintenance activities at Pakistan Maroc Phosphore (PMP) site. FFBL maintained its market share of 33%. On the other hand, industry urea offtakes remained flat at 4.1mn tons; however company’s offtakes grew by 20% YoY as FFBL’s market share climbed up to 10% (vs. 9%).

Improvement in core business bottom-line: During 3Q2018, revenues drastically improved by 38% YoY to Rs37bn, despite decline in DAP offtakes by 9% YoY. Key reasons for a jump in sales were (1) ~29% rise in DAP prices international prices and PKR depreciation, (2) higher urea offtakes due to better gas availability, and (3) increase in urea retail prices by ~23% YoY. Gross margins improved by 2.5ppts YoY to 18%, while effective tax rate clocked in at 30% (18% last year). On cumulative basis, FFBL recorded a dividend of Rs524mn from its PMP division (9M2017: RS107mn) which majorly offset absence of AKBL contribution towards Other Income. However, an exchange loss of Rs573mn was a major drag towards the bottom-line.

Outlook and other highlights: Going forward, the company intends to pass on cost pressures (including gas price hikes, PKR depreciation) to end consumers in both segments. On volumetric sales front, the company expects Urea and DAP industries to close total offtakes at 5.9mn tons and 2.3mn tons in 2018 and 6.0mn tons and 2.2mn tons in 2019, respectively. Other than that, considering country’s DAP market growth and multiple barriers to expansion, the company is also exploring the possibility to import DAP for trading purposes. On the cost front, the company expects international Phosphoric acid prices to remain range-bound during 2019.

Fauji Meat Limited: Total sales during 9M2018 declined by 19% to 1.4k tons as compared to 1.8k tons owing to lower sales emanating from China. During 2Q2018 the company launched a local brand (Zabeeha) in the domestic market with 2 outlets (one each in Karachi and Rawalpindi). To cover its working capital needs (in lieu of receivables stuck in sales tax refunds), the company increased its share capital requirement by Rs1.5bn, which after subscription took FFBL holdings in the company to 83%. The company is eyeing new markets to increase its exports and sees Iran as a potential market (recent sanctions will make this difficult). The company’s existing and potential markets include UAE, Kuwait, Bahrain, Iraq, Egypt, and Malaysia; moreover, recently Fauji Meat succeeded in acquiring approvals from KSA and awaits its final certificate.

Fauji Power and Wind: During the period, EPS of Fauji Power Company Limited (FPCL) clocked in at Rs2.52/share; up by 85% YoY primarily due to unavailability of plant of a major portion of last year. The company announced a dividend of PKR1.75/share in 3Q2018 (which will reflect in FFBL’s accounts during 4Q2018 and increase company’s bottom-line by ~Rs1.1/share). Additionally, FFBL expects sustainable dividends from both its wind projects (FWE I and FWE II) from next year onwards.

FFL: Sales remain on upward trajectory

Fauji Foods Ltd (FFL) is a 51% owned subsidiary of FFBL that produces dairy products. FFL reported LPS of Rs1.70 during 3Q2018, vis-a-vis LPS of Rs3.63 during 3Q2017. Company’s revenues continued to report growth where 3Q2018 sales increased by 9% YoY, vis-à-vis declining trend witnessed by peers. However, volumes in milk and tea whitener segments declined by 13% YoY and 19% YoY, respectively, which was in-line with industry trends. Management is making efforts of increasing contribution of higher-margin products, e.g. butter and cheese, to total sales. Currently, tea whitener contributes ~70% of sales, which is a low-margin and high-volume product, while butter is presently ~10% of total sales. On a new line of products, the company hinted at possibilities of Yogurt to be introduced in FFL’s product portfolio by next year.

Strategic sale to Yili may conclude by 2018-end

FFL was recently approached by ‘Inner Mongolia Yili Industrial Group Co. Ltd (Yili)’ to acquire up to a 51% stake in FFL. The company expects the transaction to be completed by 2018-end or by the beginning of 2019. Yili is currently the world’s eighth largest and China’s largest dairy company, and operates a diverse product portfolio including milk, yogurt and ice-cream. Post-acquisition, FFL intends to retain a material stake within minority shareholding, and the management expects Yili’s expertise and synergies to translate into expanding potential profitability. FFL remains intact with previous estimates of the company to break-even by 2020.

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JS Securities Limited – Morning Briefing

Karachi, November 07, 2018 (PPI-OT): FFBL and FFL: Key takeaways from 9M2018 result analyst briefing

Fauji Fertilizer Bin Qasim Limited (FFBL) held its Analyst Briefing yesterday to discuss performance of its core business and investment portfolio.

The company for 9M2018 posted a consolidated EPS of Rs0.29, reflecting an increase of 26% YoY. On an unconsolidated basis, EPS clocked-in at Rs0.84 as compared to a loss of Rs0.14 in the same period last year.

During 9M2018, FFBL announced a dividend of Rs524mn from its Pakistan Maroc Phosphore (PMP) division (9M2017: RS107mn) which largely offset the absence of AKBL’s contribution towards other income.

Going forward, the company intends to pass on cost pressures to end consumers in both business segments.

The company expects Urea and DAP offtakes during 2018 at around 5.9m tons and 2.3mn tons, respectively.

EPS of Fauji Power Company Limited (FPCL) during 9M2018 clocked in at Rs2.52 as compared to Rs1.36 last year. The company also announced a dividend of Rs1.75, which will enhance FFBL 4Q EPS by Rs1.1.

FFBL expects the strategic sale of Fauji Foods Ltd (FFL) to be completed by 2018-end or by the beginning of 2019.

FFBL: Key Takeaways

Fauji Fertilizer Bin Qasim Limited (FFBL) held its Analyst Briefing yesterday to discuss performance of its core business and investment portfolio. To recall, FFBL has posted 26% YoY growth in consolidated EPS to Rs0.29 owing to significant improvement in core fertilizer and power businesses. We present key takeaways from the Briefing as follows:

Overview of DAP and Urea dynamics: Industry DAP offtakes during 9M2018 declined by 3% YoY to 1.2mn tons as compared to 1.3mn tons owing to higher DAP prices. Local production witnessed an attrition of 9% YoY, while imports increased by 29% YoY. Decline in domestic production was due to unavailability of Phosphoric acid on account of ongoing maintenance activities at Pakistan Maroc Phosphore (PMP) site. FFBL maintained its market share of 33%. On the other hand, industry urea offtakes remained flat at 4.1mn tons; however company’s offtakes grew by 20% YoY as FFBL’s market share climbed up to 10% (vs. 9%).

Improvement in core business bottom-line: During 3Q2018, revenues drastically improved by 38% YoY to Rs37bn, despite decline in DAP offtakes by 9% YoY. Key reasons for a jump in sales were (1) ~29% rise in DAP prices international prices and PKR depreciation, (2) higher urea offtakes due to better gas availability, and (3) increase in urea retail prices by ~23% YoY. Gross margins improved by 2.5ppts YoY to 18%, while effective tax rate clocked in at 30% (18% last year). On cumulative basis, FFBL recorded a dividend of Rs524mn from its PMP division (9M2017: RS107mn) which majorly offset absence of AKBL contribution towards Other Income. However, an exchange loss of Rs573mn was a major drag towards the bottom-line.

Outlook and other highlights: Going forward, the company intends to pass on cost pressures (including gas price hikes, PKR depreciation) to end consumers in both segments. On volumetric sales front, the company expects Urea and DAP industries to close total offtakes at 5.9mn tons and 2.3mn tons in 2018 and 6.0mn tons and 2.2mn tons in 2019, respectively. Other than that, considering country’s DAP market growth and multiple barriers to expansion, the company is also exploring the possibility to import DAP for trading purposes. On the cost front, the company expects international Phosphoric acid prices to remain range-bound during 2019.

Fauji Meat Limited: Total sales during 9M2018 declined by 19% to 1.4k tons as compared to 1.8k tons owing to lower sales emanating from China. During 2Q2018 the company launched a local brand (Zabeeha) in the domestic market with 2 outlets (one each in Karachi and Rawalpindi). To cover its working capital needs (in lieu of receivables stuck in sales tax refunds), the company increased its share capital requirement by Rs1.5bn, which after subscription took FFBL holdings in the company to 83%. The company is eyeing new markets to increase its exports and sees Iran as a potential market (recent sanctions will make this difficult). The company’s existing and potential markets include UAE, Kuwait, Bahrain, Iraq, Egypt, and Malaysia; moreover, recently Fauji Meat succeeded in acquiring approvals from KSA and awaits its final certificate.

Fauji Power and Wind: During the period, EPS of Fauji Power Company Limited (FPCL) clocked in at Rs2.52/share; up by 85% YoY primarily due to unavailability of plant of a major portion of last year. The company announced a dividend of PKR1.75/share in 3Q2018 (which will reflect in FFBL’s accounts during 4Q2018 and increase company’s bottom-line by ~Rs1.1/share). Additionally, FFBL expects sustainable dividends from both its wind projects (FWE I and FWE II) from next year onwards.

FFL: Sales remain on upward trajectory

Fauji Foods Ltd (FFL) is a 51% owned subsidiary of FFBL that produces dairy products. FFL reported LPS of Rs1.70 during 3Q2018, vis-a-vis LPS of Rs3.63 during 3Q2017. Company’s revenues continued to report growth where 3Q2018 sales increased by 9% YoY, vis-à-vis declining trend witnessed by peers. However, volumes in milk and tea whitener segments declined by 13% YoY and 19% YoY, respectively, which was in-line with industry trends. Management is making efforts of increasing contribution of higher-margin products, e.g. butter and cheese, to total sales. Currently, tea whitener contributes ~70% of sales, which is a low-margin and high-volume product, while butter is presently ~10% of total sales. On a new line of products, the company hinted at possibilities of Yogurt to be introduced in FFL’s product portfolio by next year.

Strategic sale to Yili may conclude by 2018-end

FFL was recently approached by ‘Inner Mongolia Yili Industrial Group Co. Ltd (Yili)’ to acquire up to a 51% stake in FFL. The company expects the transaction to be completed by 2018-end or by the beginning of 2019. Yili is currently the world’s eighth largest and China’s largest dairy company, and operates a diverse product portfolio including milk, yogurt and ice-cream. Post-acquisition, FFL intends to retain a material stake within minority shareholding, and the management expects Yili’s expertise and synergies to translate into expanding potential profitability. FFL remains intact with previous estimates of the company to break-even by 2020.

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JS Securities Limited – Morning Briefing

Karachi, November 07, 2018 (PPI-OT): FFBL and FFL: Key takeaways from 9M2018 result analyst briefing

Fauji Fertilizer Bin Qasim Limited (FFBL) held its Analyst Briefing yesterday to discuss performance of its core business and investment portfolio.

The company for 9M2018 posted a consolidated EPS of Rs0.29, reflecting an increase of 26% YoY. On an unconsolidated basis, EPS clocked-in at Rs0.84 as compared to a loss of Rs0.14 in the same period last year.

During 9M2018, FFBL announced a dividend of Rs524mn from its Pakistan Maroc Phosphore (PMP) division (9M2017: RS107mn) which largely offset the absence of AKBL’s contribution towards other income.

Going forward, the company intends to pass on cost pressures to end consumers in both business segments.

The company expects Urea and DAP offtakes during 2018 at around 5.9m tons and 2.3mn tons, respectively.

EPS of Fauji Power Company Limited (FPCL) during 9M2018 clocked in at Rs2.52 as compared to Rs1.36 last year. The company also announced a dividend of Rs1.75, which will enhance FFBL 4Q EPS by Rs1.1.

FFBL expects the strategic sale of Fauji Foods Ltd (FFL) to be completed by 2018-end or by the beginning of 2019.

FFBL: Key Takeaways

Fauji Fertilizer Bin Qasim Limited (FFBL) held its Analyst Briefing yesterday to discuss performance of its core business and investment portfolio. To recall, FFBL has posted 26% YoY growth in consolidated EPS to Rs0.29 owing to significant improvement in core fertilizer and power businesses. We present key takeaways from the Briefing as follows:

Overview of DAP and Urea dynamics: Industry DAP offtakes during 9M2018 declined by 3% YoY to 1.2mn tons as compared to 1.3mn tons owing to higher DAP prices. Local production witnessed an attrition of 9% YoY, while imports increased by 29% YoY. Decline in domestic production was due to unavailability of Phosphoric acid on account of ongoing maintenance activities at Pakistan Maroc Phosphore (PMP) site. FFBL maintained its market share of 33%. On the other hand, industry urea offtakes remained flat at 4.1mn tons; however company’s offtakes grew by 20% YoY as FFBL’s market share climbed up to 10% (vs. 9%).

Improvement in core business bottom-line: During 3Q2018, revenues drastically improved by 38% YoY to Rs37bn, despite decline in DAP offtakes by 9% YoY. Key reasons for a jump in sales were (1) ~29% rise in DAP prices international prices and PKR depreciation, (2) higher urea offtakes due to better gas availability, and (3) increase in urea retail prices by ~23% YoY. Gross margins improved by 2.5ppts YoY to 18%, while effective tax rate clocked in at 30% (18% last year). On cumulative basis, FFBL recorded a dividend of Rs524mn from its PMP division (9M2017: RS107mn) which majorly offset absence of AKBL contribution towards Other Income. However, an exchange loss of Rs573mn was a major drag towards the bottom-line.

Outlook and other highlights: Going forward, the company intends to pass on cost pressures (including gas price hikes, PKR depreciation) to end consumers in both segments. On volumetric sales front, the company expects Urea and DAP industries to close total offtakes at 5.9mn tons and 2.3mn tons in 2018 and 6.0mn tons and 2.2mn tons in 2019, respectively. Other than that, considering country’s DAP market growth and multiple barriers to expansion, the company is also exploring the possibility to import DAP for trading purposes. On the cost front, the company expects international Phosphoric acid prices to remain range-bound during 2019.

Fauji Meat Limited: Total sales during 9M2018 declined by 19% to 1.4k tons as compared to 1.8k tons owing to lower sales emanating from China. During 2Q2018 the company launched a local brand (Zabeeha) in the domestic market with 2 outlets (one each in Karachi and Rawalpindi). To cover its working capital needs (in lieu of receivables stuck in sales tax refunds), the company increased its share capital requirement by Rs1.5bn, which after subscription took FFBL holdings in the company to 83%. The company is eyeing new markets to increase its exports and sees Iran as a potential market (recent sanctions will make this difficult). The company’s existing and potential markets include UAE, Kuwait, Bahrain, Iraq, Egypt, and Malaysia; moreover, recently Fauji Meat succeeded in acquiring approvals from KSA and awaits its final certificate.

Fauji Power and Wind: During the period, EPS of Fauji Power Company Limited (FPCL) clocked in at Rs2.52/share; up by 85% YoY primarily due to unavailability of plant of a major portion of last year. The company announced a dividend of PKR1.75/share in 3Q2018 (which will reflect in FFBL’s accounts during 4Q2018 and increase company’s bottom-line by ~Rs1.1/share). Additionally, FFBL expects sustainable dividends from both its wind projects (FWE I and FWE II) from next year onwards.

FFL: Sales remain on upward trajectory

Fauji Foods Ltd (FFL) is a 51% owned subsidiary of FFBL that produces dairy products. FFL reported LPS of Rs1.70 during 3Q2018, vis-a-vis LPS of Rs3.63 during 3Q2017. Company’s revenues continued to report growth where 3Q2018 sales increased by 9% YoY, vis-à-vis declining trend witnessed by peers. However, volumes in milk and tea whitener segments declined by 13% YoY and 19% YoY, respectively, which was in-line with industry trends. Management is making efforts of increasing contribution of higher-margin products, e.g. butter and cheese, to total sales. Currently, tea whitener contributes ~70% of sales, which is a low-margin and high-volume product, while butter is presently ~10% of total sales. On a new line of products, the company hinted at possibilities of Yogurt to be introduced in FFL’s product portfolio by next year.

Strategic sale to Yili may conclude by 2018-end

FFL was recently approached by ‘Inner Mongolia Yili Industrial Group Co. Ltd (Yili)’ to acquire up to a 51% stake in FFL. The company expects the transaction to be completed by 2018-end or by the beginning of 2019. Yili is currently the world’s eighth largest and China’s largest dairy company, and operates a diverse product portfolio including milk, yogurt and ice-cream. Post-acquisition, FFL intends to retain a material stake within minority shareholding, and the management expects Yili’s expertise and synergies to translate into expanding potential profitability. FFL remains intact with previous estimates of the company to break-even by 2020.

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