AKD Quotidian about — FATIMA: CY11 Result Preview

Karachi: Fatima Fertilizer Company is scheduled to announce its full year CY11 result on Mar 9’12.

According to AKD Securities reckons that FATIMA will post NPAT of PKR 4,012 million (EPS: PkR2.01) for CY11. Sales are expected to clock in at PkR14.75bn with gross margin of 66%. In this regard, 4QCY11 NPAT is forecasted to be PkR2.165bn (EPS: PkR1.08) while sales will be PkR7.426bn. Sales contribution of Urea, CAN & NP in total revenue mix is forecasted to be 40%, 33% & 27% respectively. Gross margins are calculated to increase by 400bps QoQ to be 68.1%, largely due to higher margins on urea. AKD Securities expects considerable decline in finance cost – by 0.6bn QoQ in 4QCY11 due to lower KIBOR and improved liquidity. While an improving liquidity profile due to robust core fertilizer operations does enhance FATIMA’s ability to distribute cash dividends, cumulative preferred dividends (estimated to reach PkR1.25bn by end CY11) coupled with potential restriction from debt covenants may limit FATIMA to announce a cash dividend with the CY11 result. However, a DPS of PkR1.00-PkR1.25 could be announced for minority shareholders (shareholding ex directors/associate companies, which account for -78% of FATIMA shareholding). AKD Securities is in the process of initiating coverage on FATIMA and in this regard will be releasing an initiation report soon.

Saudi Arabia has reportedly removed restrictions on cement import to cater to its increasing demand. The move follows increase in prices of cement within the Kingdom, especially within the Western region as the country embarks on a program of heavy fiscal spending (SAR1.4tn 5yr development program; 0.5mn low cost housing units at an outlay of SAR250bn and private projects worth SAR270bn launched in CY11). Consequently, retail cement prices in KSA are being quoted as high as SARI7-SAR23 per bag (US$91-US$123 per ton). With almost all production being absorbed locally (CY11 off take: ~47mn tons) and a likely surge going forward owing to high infrastructure spending, the government of KSA has for the time being opted to open doors for imports with a view of lowering local prices. In this regard, AKD Securities remains cautiously optimistic with regards to the export scenario for Pakistan cement producers, noting that Pakistan will be competing directly with UAE for export orders. Lower prices on exports (currently US$55-US$60 per ton) being charged by Pakistan producers supports the viability of exports from Pakistan to Saudi Arabia. In this regard, given cost advantage and proximity to the port (should orders come through), AKD Securities expects Lucky Cement to be the main beneficiary (manufacturing cost -US$35 per ton and freight charges of about US$15 per ton). At current levels, LUCK trades at a FY12F and FY13F PER of 5.6x and 5.3x, respectively, and offers an upside of 10.5% to AKD Securities’ target price of PkR113/share – Accumulate!

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