Earnings Report /
Pakistan

Pakistan Fertilizers: Sector will continue to post decent earnings and payout

  • IMS Fertilizer Universe is expected to post cumulative net profits of PKR20.1bn in 1QCY22 up c.20% yoy

  • Industry Urea/DAP offtake are estimated to clock in at c.1.5/0.2mn tons in 1QCY22, up 7%/3% yoy

  • Higher Urea/DAP sales are attributed to better farm economics and preemptive buying before recent price hikes

Abdul Ghani Mianoor
Intermarket Securities
15 April 2022
  • IMS Fertilizer Universe is expected to post cumulative net profits of PKR20.1bn in 1QCY22 up c.20% yoy. The rise in profitability is mainly attributed to (i) elevated Urea and DAP prices, and (ii) higher industry offtake.

  • Industry Urea/DAP offtake are estimated to clock in at c.1.50/0.20mn tons in 1QCY22, representing an increase of 7%/3% on a yoy basis. Higher Urea sales are mainly attributable to better farmer economics and preemptive buying before recent price hike by PKR180/bag in March.

  • On a sequential basis, the combined core net profits of our Fertilizer Universe are expected to decrease by 5% qoq. Despite steep decline in Urea/DAP offtake in 1Q, elevated fertilizer prices will rescue core profits of the Fertilizer sector, in our view.

FFC: Elevated prices coupled with FWEL dividend to boost earnings

Fauji Fertilizer Company (FFC) is expected to post 1QCY22 unconsolidated earnings of PKR6.1bn (EPS: PKR4.82), up 6% yoy. The expected increase in profits is majorly led by: (i) 9% yoy increase in Urea sales to c.627,000 tons in 1QCY22 coupled with increase in Urea prices and (ii) a massive boost to other income to PKR3.1bn, amid higher short-term investments and dividends received from FWEL-I-II. Gross margins are expected to increase by 5ppt yoy to 38%, because of higher DAP margins and Urea prices. We expect an interim cash dividend of PKR4.0/sh in 1QCY22. We reiterate our Buy stance on FFC (TP PKR140/sh), due to the prospect of better future earnings amid potential Urea price increases, coupled with a handsome dividend yield.

EFERT: Earnings to dip a bit in the absence of concessionary gas

Engro Fertilizer (EFERT) is expected to post 1QCY22 net profit of PKR5.4bn (EPS: PKR4.05), down 6% yoy. The decline is majorly due to (i) lower Urea offtake, down by 11% yoy amid high base effect of last year; and (ii) discontinuation of concessionary feed gas for Enven plant, which ended in June 2021. Therefore, the GMs of the company are likely to come off by 6ppt yoy to 33% in 1QCY22. That said, some support should come from higher Urea prices and elevated DAP margins. We expect EFERT to announce an interim cash dividend of PKR4.0/sh. We presently have a Buy stance on EFERT (TP PKR95/sh), with estimates yet to be revised after recent and potential future expected Urea prices hikes. This will not only increase TP and EPS but will also improve dividend yield in coming years.

FFBL: Robust earnings amid higher primary margins

We expect Fauji Fertilizer Bin Qasim (FFBL) to post an unconsolidated NPAT of PKR2.6bn (EPS: PKR1.98) in 1QCY22 compared to a profit of PKR1.3bn (EPS: PKR0.98) in SPLY. Core profits of FFBL are likely to increase due to a sharp 67% yoy increase in Urea offtake to c.177,000 tons (DAP offtake likely to remain flat yoy). Also, massive increase in international DAP primary margins and local prices will bolster profitability, in our view. We therefore expect gross margins in 1Q to increase by a strong 7ppt yoy to 26%. On a consolidated level, losses from Fauji Foods (FFL) will likely be curtailed amid better sales and lower finance cost post recent right issue, in our view. However, Fauji Meat (FML) losses are likely to remain unchanged, given the fact that plant is not operational and fixed overheads are likely to hit FFBL’s consolidated profits. FFBL core business remains solid given its cash position and DAP primary margins. We have a Buy stance on FFBL (TP PKR30/sh).

FATIMA: Elevated earnings due to strong offtake and prices

Fatima Fertilizer (FATIMA) is expected to post net profits of PKR6.0bn (EPS: PKR2.85) in 1QCY22, up by a sharp 60% yoy. This is mainly due to (i) higher margins on NP and DAP, and (ii) increase in Urea and CAN prices and offtakes. The company’s gross margins, however, are expected to decline by a sharp 9ppt yoy to 34% due to discontinuation of concessionary gas. We presently have a Neutral stance on FATIMA with a TP of PKR40/sh.