Karachi, July 26, 2021 (PPI-OT): FFBL, FFC and EFERT: Result Previews 2QCY21

FFBL – Sequential dip on absence of dividend income: Fauji Fertilizer Bin Qasim Ltd (FFBL) is expected to post 2QCY21 unconsolidated NPAT of PkR793mn (EPS: PkR0.61), as opposed to NLAT of PkR1.16bn (LPS: PkR0.90) in the same period last year. The turnaround in earnings is expected on the back of (i) 14% YoY increase in revenue, courtesy uptrend in local urea and DAP prices, (ii) uptick in gross margins expected at 21% in 2QCY21 vs. 13% in 2QCY20 courtesy higher DAP primary margins, (iii) 75%YoY decline in other expense in absence of one-off impairment charge booked in 2QCY20 and (iv) 55% YoY decline in finance cost amid lower interest rates. On sequential basis, the 37% decline in NPAT is expected on the back of 83%QoQ decline in ‘other income’ (absence of dividend income), which will outweigh the increase on gross level. For 1HCY21, FFBL, is expected to post NPAT of PkR2.06bn (EPS: PkR1.60) vs NLAT of PkR4.21bn) (LPS: PkR3.26) in the same period last year. Our TP of PkR37/sh implies a Buy stance at last day closing price.

FFC – Muted 2QCY21 NPAT contain 1H EPS growth at 14%: Fauji Fertilizer Company Ltd (FFC) is expected to announce NPAT of PkR4.63bn (EPS: PkR3.64) in 2QCY21, flattish on YoY basis, but down 20%QoQ. This will take 1HCY21 NPAT to PkR10.45bn (EPS: PkR8.21), up 14%YoY. The QoQ decline in earnings is majorly expected on the back of normalization of gross margins to 33% vs. 39% in 1QCY21 and absence of dividend income. The increase in 1HCY21 earnings is expected to emanate from (i) 214bps YoY higher gross margins amid flattish revenues and, (ii) 26%YoY decline in finance cost. The company is also expected to announce second interim cash dividend of PkR3.0/sh taking cumulative payout to PkR6.5/sh for 1HCY21. Healthy EBITDA margins will enable the company to maintain its historical payout ratio of 75%+, despite upcoming GIDC payments as per Supreme Court’s decision. Our TP of PkR145/sh implies a Buy stance at last close.

EFERT – 2Q NPAT to decline 28%QoQ; healthy payouts to continue: Engro Fertilizer Ltd (EFERT) is expected to post 28%QoQ lower NPAT of PkR4.14bn (EPS: PkR3.10) in 2QCY21, taking the 1HCY21 NPAT to PkR9.8bn (EPS: PkR7.40), up 122% YoY. For 2QCY21 alone, the decline in earnings is expected on the back of 20% YoY lower urea offtakes (high base effect), nullifying higher urea and DAP prices. On the flipside, 54% YoY lower finance cost and 130% YoY higher ‘other income’ will likely contain decline in earnings. For 1HCY21, the earnings are expected to post 122% YoY increase on the back of (i) 50% YoY increase in revenues (low base effect – EFERT’s urea offtake suffered in 1QCY20 from a delayed reduction in urea price as compared to peer FFC), (ii) 106%YoY higher other income, (iii) 68% YoY lower finance cost and (iv) lower effective tax rate of 32% vs 35% in the same period last year. The company is also expected to announce 2nd interim cash dividend of PkR3.0/sh, taking 1HCY21 payout to PkR7.0/sh vs. PkR4.0/sh in 1HCY20. At our TP of PkR69.1/sh, we have a Neutral stance on the scrip at last close.