Foundation Research Equities

PAKISTAN
16 April 2013
FFBL PA
Stock price as of Apr 15 Dec-13 target Upside/downside Valuation
- DCF based

Fauji Fertilizer Bin Qasim

Neutral
Rs Rs % Rs 37.6 42.1 12% 42.1

Higher sales turn bottom-line to black

Event
Fauji Fertilizer Bin Qasim Ltd (FFBL) posted 1QCY13 earnings of PKR 0.53/sh,
broadly above market consensus. Higher earnings are attributable to aboveexpected sales and optimum production of DAP. Overall the results remained unexciting but was considerably better than 1QCY12 where the company recorded loss of PKR0.41/sh.

Fertilizer Sector Market cap 30-day avg turnover Market cap Number shares on issue
Year end 31 Dec Total revenue EBIT EBIT Growth Recurring profit Reported profit EPS rep EPS rep growth EPS rec EPS rec growth PE rep PE rec Total DPS Total div yield m m % m m Rs % Rs % x x Rs % 2011A 55,869 17,258 62.5 10,767 10,767 11.53 65.3 11.53 65.3 3.3 3.3 10.00 27% 26.8 79.0 1.8 -19.46 2.6

Rs bn US$m US$m m
2012A 47,911 8,291 (52.0) 4,338 4,338 4.64 (59.7) 4.64 (59.7) 8.1 8.1 4.25 11% 9.2 25.6 3.4 -34.50 2.5 2013E 49,558 9,211 16.5 5,380 5,380 5.76 48.4 5.76 24.1 6.5 6.5 5.07 13% 13.3 36.4 2.8 -41.04 2.4

35.0 0.3 357 934

2014E 53,040 8,213 (10.8) 4,828 4,828 5.17 (10.2) 5.17 (10.2) 7.3 7.3 4.40 12% 11.8 31.2 2.9 -55.17 2.3

Not much is likely to change in 2QCY13 results in our view , which is expected to
remain unexciting with higher risk of company skipping div in 2Q given AKBL transaction is under way. At current price level, the stock is trading at 12% discount to our DCF based TP of PKR42, however, we maintain our neutral rating on the scrip. Impact

Investment fundamentals

Fertilizer sales increased phenomenally: Owing to better gas availability, net

sales of the company jumped by 298% YoY to Rs7,694mn compared to Rs1,934mn in 1Q12. This massive surge in sales is due to higher urea (190% YoY) and DAP sales (111% YoY) on the back of higher urea and DAP production compared to corresponding period last year when production remained at historical low levels owing to suspension of gas supply. Moreover, in 1QCY13, both urea and DAP prices decreased by 7% and 4% YoY, respectively.

Higher PM further supported the bottom line: FFBLs phos-acid contract

was settled at USD 770/ton for 1QCY13, down 9% QoQ. Hence, during the period DAP primary margins (PM) recorded a rise of 4% YoY and 11% QoQ to ~USD293/ton, which further corroborated the bottom line. PM for DAP are expected to hover at current level (USD293/ton) given upward sticky phosphoric acid prices. We re- iterate that FFBLs earnings are highly sensitive to DAP primary margins. Our sensitivity analysis suggests that, for every USD10 change in primary margin translates into an annualized EPS impact of ~PKR0.45/share.

ROA % ROE % EV/EBITDA x Net debt/equity % Price/book x

FFBL PA rel KSE100 performance

170% 150% 130% 110% 90% 70%
Feb-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-12 Jun-12 Apr-13

PMP operations portray a murky picture: Similar to CY12, the PMP operations
remained subdued. The company reported loss of PKR 48mn vs profit of 192mn witnessed same period last year due to imbalance between input and output prices.

Urea production to remain flat in CY13: During CY12, the company faced gas
curtailment of 40%. Thus, urea production plunged by 36% YoY, however, DAP production remained at optimum level. Likewise, urea and DAP production is expected to remain flat in CY13. To elaborate, we estimate the urea plant to run at 55% and DAP to operate at 95% capacity utilization level.

KSE

FFBL

Diversification plans amplified: AKBL transaction is underway where the

company would spend ~Rs4.4bn for the acquisition (30% stake). Thus, risk of div cut in 2H increases, however, we maintain our div estimate of PKR4.50 in CY13, translating into a div yield of 12%.

Source: Bloomberg, Foundation Research, April 2013 (all figures in PKR unless noted)

Analyst
Shahbaz ShahbazAshraf Ashraf, CFA 92 9221 215612290-94 5612290-94 shahbaz.ashraf@fs.com.pk Ex-338

In addition to this, FFBL is also working on meat export business. The feasibility
study has been completed; however, the location of the project is undecided. The investment size of this project would be PKR3-4bn, which would be funded via mix of debt and equity. At present, it is pre mature to assess the profitability of the venture. At ROE of 30%, and project capital structure of 60-40 debt/equity, we

Disclaimer: This report has been prepared by FSL. The information and opinions contained herein have been compiled or arrived at based upon information obtained from sources believed to be reliable and in good faith. Such information has not been independently verified and no guaranty, representation or warranty, express or implied is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. This document is for information purposes only. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this document is not, and should not be construed as, an offer, or solicitation of an offer, to buy or sell any securities or other financial instruments. FSL may, to the extent permissible by applicable law or regulation, use the above material, conclusions, research or analysis before such material is disseminated to its customers. Not all customers will receive the m aterial at the same time. FSL, their respective directors, officers, representatives, employees, related persons may have a long or short position in any of the securities or other financial instruments mentioned or issuers described herein at any time and may make a purchase and/or sale, or offer to make a purchase and/or sale of any such securities or other financial instruments from time to time in the open market or otherwise, either as principal or agent. FSL may make markets in securities or other financial instruments described in this publication, in securities of issuers described herein or in securities underlying or related to such securities. FSL may have recently underwritten the securities of an issuer mentioned herein. This document may not be reproduced, distributed or published for any purposes.

Fauji Fertilizer Bin Qasim Ltd

April 16, 2013

estimate PKR0.12 /sh impact on FFBL.

Earnings Revision
No change in earnings estimates.

Target Price and Price catalyst

December-13 price target: PKR42.1/share based on Discounted Cash Flow methodology. Catalyst: Change in urea prices, DAP margins and gas curtailment

Action and recommendation

At current price level, the stock provides an upside of 12% to our DCF based target price of PKR 42.1/share. We
maintain our neutral rating on the stock.
1QCY13- Earnings Summary
Earnings Highlights (PKRmn) Revenue Gross Profit Operating Cost Operating Profit Finance Cost Income from Associate Other Income Other Expenses PBT Taxation Net Income 1QCY12 1,934 (265) 342 (608) 306 192 320 1 (402) (15) (387) 1QCY13 7,694 1,648 705 943 265 (48) 177 59 747 256 491 YoY 298% n.m 1.06 n.m -13% n.m -45% 7819% n.m n.m n.m

EPS

(0.41)

0.53

n.m

Gross Margin Operating Margin Tax Rate Source: FS Research, Company Data, April'13

-14% -31% 4%

21% 12% 34%

Foundation Securities (Pvt) Limited

Fauji Fertilizer Bin Qasim Ltd

April 16, 2013

About The Company

Fauji Fertilizer Bin Qasim is the sole DAP and Granular urea producer in Pakistan. Initially named as FFC-Jordan Fertilizer Company (FJFC), FFBL was formed on 17th Nov 1993, with FFC (30%), FF (10%) and JPMC (10%) as main sponsors. The company was formally listed with stock exchanges in May 1996 and commercial production commenced wef Jan 2000. The company was renamed as Fauji Fertilizer Bin Qasim Ltd. (FFBL) in 2003, as Jordan Phosphate Mines Co. (JPMC) had sold its entire equity in the company. FFC currently owns a 51% stake in FFBL. FFBL is listed on all the three stock exchanges of the country.

Foundation Securities (Pvt) Limited