Topline Securities Limited - Fauji Fertilizer Company (FFC): 4Q2018 EPS Rs5.0, +37% YoY (+18% QoQ); DPS Rs3.9/share (Above expectations)

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Topline Securities Limited

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Fauji Fertilizer Company (FFC): 4Q2018 EPS Rs5.0, +37% YoY (+18% QoQ); DPS Rs3.9/share (Above expectations)

Fauji Fertilizer (FFC) beats market consensus by posting earnings of Rs6.4bn (EPS: Rs5.0), up 37% YoY mainly due to higher urea retention prices (+21% YoY net of subsidy) during 4Q2018 and higher margins on DAP as FFC was holding DAP inventory of 264k tons at the beginning of the 4Q2018 after which DAP prices surged Rs200-250 per bag amidst rupee devaluation in Oct and Dec 2018.
Gross margins of core operations (fertilizer) were only 20bps higher than our estimates of 27.8% (vs. 28.0% actual) estimates. Earnings deviated from our estimates due to relatively higher income from associated/JV companies and other income, we believe. We await for further clarity on these accounts.
Net Sales of FFC enhanced by 7% YoY despite 18% YoY drop in urea dispatches during 4Q2018 as urea and DAP prices swelled 25% and 30% YoY, respectively.
Finance cost fell 9% YoY to Rs588mn during 4Q2018 due to lower debt borrowings amidst availability of cash flows from accrual of GIDC. While Distribution expense grew nearly in line with sales growth.
FFC also declared cash dividend of Rs3.9/share, taking full year DPS to Rs8.8/share (Payout Ratio: 68%).
Key risks to FFC include 1) decline in international urea prices, 2) slower than expected urea sales, 3) unfavorable decision related to GIDC and 4) poor crop season.

31/01/2019 5 EN

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Topline Securities Limited

Topline Securities is one of the fastest-growing brokerage houses in Pakistan. It has strong Equity Brokerage, Economic/ Equity Research, Commodity Trading and Corporate Finance & Advisory functions.

Topline Securities has been endowed with numerous awards by renowned international financial organizations. The highlights of which consists of the award for ‘Best Local Brokerage House of Pakistan’ by Asiamoney Brokers Poll (the largest Asia-focused equity services provider poll) in 2016 and ‘Best Equity Brokerage House’ by CFA Society Pakistan in 2015.

Previously, Topline Securities held the title for ‘Best Brokerage House’ for 4 consecutive years (2011-2014) by Asiamoney Brokers Poll. Other awards include the ‘Best Salesperson’ award by Asiamoney for 6 consecutive years (2011-2016), the ‘Arabia Fast Growth 500’ award and ‘Pakistan Fast Growth 100’ award in 2012 and 2013 by AllWorld Network.

JCR-VIS, a credit rating agency providing independent rating services in Pakistan has assigned initial rating of “A-2” for short term and “A” for long term to Topline Securities. Topline Securities is registered as Underwriter, Book Runner and Research Entity with Securities & Exchange Commission of Pakistan (SECP).

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Fauji Fertilizer Company (FFC): 4Q2018 EPS Rs5.0, +37% YoY (+18% QoQ); DPS Rs3.9/share (Above expectations)

Pakistan Strategy: Foreign selling at PSX; Will this trend continue in 2021?

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Pakistan Automobiles: Car sales (including KIA) up ~63% YoY in Nov-2020

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