FFBL: Worth a relook,(AKD Daily, Feb 21, 2020)
FFBL: Worth a relook
- A worse than expected standalone 4QCY19 result (LPS: PkR3.75 - including one-off impairment charge of PkR1.60/sh), has led FFBL to underperform KSE-100 by 6.5%. However, GIDC elimination on feed gas/fuel for the Fertilizer sector may give the loss making FFBL some breathing space in immediate term.
- To note, GIDC elimination reduces cost for overall production, benefit to end consumers was passed on only through a decrease in urea prices of PkR300/bag w.e.f 01st Feb’20. Meanwhile, DAP production/offtake accounted for 62/58% of FFBL’s total production and offtake in CY19. Hence, the current situation implies an uptick in DAP PMs.
- FFBL has been posting losses on a standalone basis in 1H of each of last four calendar years. A potential turnaround in 1HCY20 cannot be ruled out, which can trigger scrip’s price performance. GIDC decision is still awaited, where a favorable decision could be another upside trigger.
- Downside risks include continued decline in international DAP price resulting in discounts by FFBL (current DAP price hovering at around PKR3,400-3,450/bag vs. landed cost of imported DAP of PkR3,000/bag). Our current TP of PkR22.72/sh offers an upside of 22% at last close, implying a Buy stance.
AKD Research
Fauji Fertilizer Bin Qasim Limited is a Pakistan-based holding company. The Company manufactures, purchases and markets fertilizers. It is involved in meat, dairy and coal based energy generation sectors. It has identified its potential business segments and has undertaken investments in the areas of food, financial, power sector and wind energy projects. Its products include Granular Urea, such as Sona Urea, and Di Ammonium Phosphate (DAP), such as Sona DAP. Sona Urea is a synthetic organic compound containing nitrogen in amide form available in the form of white solid prills. It is applied to soil and also suitable in solution form as spray application. Sona DAP contains nutrient element, phosphorous besides nitrogen available in flowing granular form Granules are stronger, harder and of uniform size. It is suitable for various crops and soils recommended for initial application. It produces over 791,260 metric tons (MT) of DAP and approximately 433,610 MT of Urea.
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