Dear Clients,

Fauji Fertilizer Bin Qasim Limited (FFBL) held its analyst briefing today to discuss financial performance and provide its future outlook onwards. FFBL posted unconsolidated PAT of PKR 1.3bn (EPS: PKR 0.98) in 1QCY21 as against a loss of PKR 3.0bn (LPS: PKR 2.36) in SPLY. With rise in international DAP prices and favourable interest rate environment, tides have turned in favour of FFBL.

Key takeaways

• The company’s profitability landed in positive territory after five years of consecutive losses in first quarter accredited to higher local DAP prices and lower financial cost cost amid reduction in policy rate by 625bps. As per the management, 2QCY21 is expected to record healthy profits as well on account of stable international DAP prices

• The management highlighted that approval of gas supply with SSGC for the next 5yrs is a huge success for the company as there were fears of disconnection of gas supply

• With regards to installation of new DAP plant, the company highlighted that this would be a project of FFC and discussions with government are still underway. As per the management, this would be a fruitful  project as 60% of the demand is met through imports. Furthermore, the plant will be most likely be located in Port Qasim as the primary raw material (Phosphoric acid) is imported

• FFBL is in negotiations to sell it Wind Power Projects and has received 2 Expression of Interests so far. This remains a key upside for the company as this would resolve liquidity constraints and reduce financial charges going forward

• FFL has undergone financial restructuring and as well as added new products lines – Butter and Cheese – that has helped the company in restricting losses. FFL recorded positive EBITDA in 1QCY21. To recall, FFBL recorded impairment loss worth PKR 4.1bn on FML and FFL

• FPCEL has remained a steady business and FFBL expects a sustainable dividend stream in the future as well

• We have an Outperform rating on the stock and our target price stands at PkR 35/sh (based on long term primary DAP margin of USD150/MT), providing an upside of 35% from the last close of PkR 26/sh

(Please see Q&A in report)

KASB Research