FCCL_Sticking to basics, (AKD Daily, Nov 16, 2020)
- We revise our estimates for Fauji Fertilizer Bin Qasim Ltd (FFBL), incorporating the recent right issue (post right TP: PkR25.7/sh). FFBL witnessed a turnaround in terms of 3QCY20 NPAT (PkR3.3bn; EPS: PkR3.54) vs NLAT of PKR1.2bn (LPS: PkR1.24) in 2QCY20. A mix of uptrend in DAP price as well as volumetric offtake, lower finance cost, GIDC elimination and dividend income, led to the bottomline in green.
- Positive developments namely, (i) extension in GIDC payment timeline and (ii) potential sell-off of its stake in wind power project (PkR8.6bn), could result in improved liquidity (GIDC payment net of cash is PkR14bn, vs. right issue + sell off of wind projects PkR13.6bn).
- However, downside risks including: (i) further loans to loss making food ventures and, (ii) budgetary measure of 10% expense disallowance w.e.f Oct’20, may keep price performance in check. To emphasize, the latter has the potential to erode 40% of our CY21F NPAT, even if EFERT and FFC decide to pass-on the impact to end consumers in terms of a PkR45-50/bag urea price hike (see table below).
- While we have not incorporated the aforementioned risk in our estimates, this could be a potential dampener for an otherwise turnaround story. The recent correction has opened valuation upside, however, we advise investors to maintain a cautious stance based on potential sector developments.
AKD Research
Fauji Cement is engaged in the manufacturing and marketing of cement.
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