This document provides an analysis of Misr Fertilizers Production Company (MOPCO), Egypt's largest producer of urea fertilizer. It discusses two key scenarios for MOPCO's performance given the recent floatation of the Egyptian pound which increased natural gas costs significantly. Under scenario 1, where fertilizer prices increase to offset costs, the company's fair value is estimated at EGP 40.12 per share. However, if prices remain unchanged, scenario 2 estimates the fair value would fall to EGP 28.29 per share due to narrowing margins. Key risks to MOPCO include further increases in natural gas costs, high debt denominated in dollars, and the need for short-term financing until fertilizer

1. PRIME INVESTMENT RESEARCH
SPOTLIGHT - MISR FERTILIZERS PRODUCTION COMPANY
JANUARY 5TH
2017
1
Fertilizers Industry latest: Floatation had a direct effect on the companies’ production costs, as
cost/ton witnessed 60-70% increase, with cost/ton averaging at EGP 3,000/ton. The reason be-
hind the increase is the increase in natural gas cost in EGP terms (represents 60% of total COGS),
which stands at USD 4.5/mmbtu, following the floatation. The latest EGP/USD value at 18.0
leads to 102% increase in natural gas cost for fertilizers producers leading to a sharp increase in
cost/ton. Meanwhile, selling prices remained unchanged with the government forcing producers
to supply the majority of their production to the Principle Bank for Development and Agriculture
Credit (PBDAC). Prices have been unchanged since 2014, where prices were raised to EGP 2,000
per ton of urea and EGP 1,900 per ton of nitrate. The increase in cost means a negative gross
margin for companies that only sell in the local market. Meanwhile, other companies are only
allowed to export certain products at a maximum of 45% of production. It is worthy to mention
that a company like Abu Qir Fertilizers export revenues accounted for 20% of the company’s
total revenues in FY-16. This does not offset the effect of the increase in natural gas cost which
led companies to abstaining from supplying their quota. Due to the unfavorable margins for
fertilizers producers it would be impossible for them to maintain operations at current price
levels. As a result, we expect price increase to take place very soon with prices expected to be
raised by 50% to reach EGP 3,000/ton.
Misr Fertilizers Production Company (MOPCO) (MFPC.CA) is a free zone company, receiving
taxation benefits, that was established in 1998, specializing in Urea production. The company
is the first in over 10 years a public sector company’s shares float on EGX. And represent the first
among a long list of government owned entities to be floated over the upcoming short term
horizon. The company was about to get listed pre 2011 political turmoil; when the economic
conditions trembled, leading to postponing the decision.
MOPCO owns 99.9% of the Egyptian Nitrogen Products Company (ENPC) that commenced op-
erations by mid-2016, a fully owned subsidiary specializing in producing the same product –
Nitrogen derivatives. ENPC investment is expected to take the aggregated production capacity
north to c. 2mn tons of urea and ammonia, that came in line in 1H2016 and is expected to start
contributing to the company`s earnings by 2H2016.
MOPCO entering a new era following expansion: In August 2008 MOPCO acquired E-Agrium, a
joint venture between Canada’s Agrium, the Egyptian Petrochemicals Holding Company
(ECHEM), the Egyptian Gases Holding Company (EGAS), the Egyptian Natural Gases Holding
Company (GASCO), and Arab Petroleum Investment (Apicorp). E-Agrium acquired 26% of
MOPCO as their end of the deal and the company was renamed ENPC. This acquisition helped
MOPCO to add two production lines, which began commercial operations in May 2016. These
two lines were expected to be operational much earlier however, in 2011 the government de-
cided to shut down the operations of MOPCO in Demietta after protests claimed that the com-
pany were not following the environmental standards. This decision was reversed later in 2013
allowing the resumption of the construction of the two added lines MOPCO 1 & 2. Currently
MOPCO owns a total capacity of 1.9mn tons of Urea and 1.2mn tons of ammonia. The increased
capacity will lead the company to higher levels of production and in turn sales which will trans-
late in higher expected revenues.
MISR FERTILIZERS PRODUCTION COMPANY …
Debt position casts doubt over expansion gains
Stock Data
Outstanding Shares [in mn] 229.1
Mkt. Cap [in mn] (USD) 7,510.4
Bloomberg – Reuters MFPC EY / MFPC.CA
DAILY AVERAGE TURNOVER (2015) EGP 0.9MN
Ownership
Egyptian Petrochemicals Holding 31%
Agrium 26%
National Investment Bank 13%
EGAS 8%
GASCO 6%
Other 11%
Free Float 5%
Source: MOPCO, Prime Estimates
All prices are as of 3rd
Jan 2017
0
10
20
30
40
50
60
70
MOPCO EGX 30-rebased

2. 2
Possible scenarios for MOPCO going forward: Following the floatation the company like all other producers has
been suffering from gross margin per ton compression due to the increase in natural gas cost. This increase is yet to
be compensated for MOPCO’s local sales by any increase in selling prices as the government maintained selling
prices at EGP 2,000. According to the latest financials the company has been selling Urea at an average price of EGP
1,840/ton. We assume two scenarios for the company going forward:
 Scenario 1 – Government raising prices to offset the negative floatation effect: According to this scenario, we
expect revenues to increase by 269% y-o-y in 2016 to reach EGP 2.27mn following the operation of the new
lines at an expected utilization rate of 40% despite price remaining unchanged during 2016. It is worthy to
mention that the company is expected to export 60% of its production while selling 40% of its production lo-
cally. Moreover, we believe the company might be able to increase its export portion to 70% once the fertiliz-
ers problems are over in Egypt by maximum 2018. We expect revenues to grow further by 117% y-o-y in 2017
with the increase in MOPCO 1 & 2 utilization which is expected to reach 70% and grow further for the follow-
ing years to reach 95% by 2021. This scenario assumes local selling prices to be raised at EGP 3,000/ton. As for
the export portion we expect the company to benefit from the floatation effect as the EGP value of the inter-
national prices is expected to increase significantly (by almost 55% in 2017). Meanwhile, production cost is
expected to increase as we explained the increase in natural gas cost. We expect COGS-to-sales to be at high-
est in 2016 at 50%. However with the expected easing of the EGP/USD rate we expect COGS-to-sales to drop
49-48% by 2017 and maintain this level. This scenario is most likely set to take place in the near future and
would offset the negative effect of the increase in natural gas cost. Applying this scenario result in a fair value
of MOPCO to EGP 40.12/share. It is worthy to mention that we applied the same scenario to Abu Qir Fertlizers
Company which also raised our fair value to EGP 114.94/share. It is worthy to mention that, the large scale
caused by the added capacity has resulted into higher revenues at the new price levels. As a result the higher
NOPLAT has resulted in the increased fair value.
 Scenario 2 – Maintaining current selling prices despite cost increase: Assuming that the government would
maintain EGP 2,000/ton, which we expect to increase by 5% annually due to inflation pressure, would have a
direct negative effect on the company’s margins as it would be unfeasible for companies to maintain opera-
tions amid the high natural gas cost. While export sales remain unharmed local sales are expected to drop due
to the low selling price. This would lead COGS-to-sales to reach 50% in 2016 which would increase further to
53% by 2017 maintaining such levels until 2021. In addition to the hit to MOPCO’s gross margin, the company
that is already suffering from a liquidity squeeze due to its high debt in foreign currency would face a problem
in terms of its cash flow and would require additional debt (overdrafts) to survive. Maintaining current price
levels despite increase in cost would have had a negative effect on our valuation of MOPCO fair value drop-
ping to EGP 28.29/share. It is worthy to mention that we applied the same scenario to Abu Qir Fertlizers Com-
pany which also dropped our fair value to EGP 97.13/share. We note that Abu Qir suffered less of a hit to its
fair value due to its operational nature as it has higher margin products that are completely exported such as
(liquefied UAN).
PRIME INVESTMENT RESEARCH
MISR FERTILIZERS PRODUCTION COMPANY - SPOTLIIGHT
JANUARY , 2017
70%
50% 45%
46% 48% 48%
47%
0%
10%
20%
30%
40%
50%
60%
70%
80%
-
500
1,000
1,500
2,000
2,500
3,000
2015 2016e 2017e 2018e 2019e 2020e 2021e
Gross profit Gross Margin %
70%
50%
51%
51% 51% 51%
50%
0%
20%
40%
60%
80%
-
1,000
2,000
3,000
4,000
2015 2016e 2017e 2018e 2019e 2020e 2021e
Gross profit Gross Margin %
SCENARIO 1 GROSS PROFIT & GROSS MARGIN, EGP MN & % SCENARIO 2 GROSS PROFIT & GROSS MARGIN, EGP MN & %
SOURCE: PRIME RESEARCH

3. 3
Key Risks for MOPCO:
 Higher natural gas cost: The increase in natural gas cost in EGP terms (represents 60% of total COGS), which
stands at USD 4.5/mmbtu, following the floatation. The latest EGP/USD value at 18.0 led to 102% increase in
natural gas cost for fertilizers producers leading to a sharp increase in cost/ton. Any further hike in EGP/USD
rate would lead to further increase in the company’s production cost. Furthermore, a decision (however
unlikely) to raise natural gas price by the government for fertilizers from USD 4.5/mmbtu might would have a
more negative effect on the company’s margins.
 Huge debt in USD: In order to add the two lines added capacity, MOPCO 1&2, the company had to acquire
financing worth USD 1.05bn in 2014. Currently, the company has two long term loans. The combined portion
in USD of total debt stood at USD 645mn as of 9M2016, whereas the portion in EGP stood at EGP 2.6bn. Fol-
lowing the floatation the dollar portion of the loans increased drastically in EGP terms. Applying the exchange
rate of EGP/USD 18.0 at the end of 2016 results in 82.7% increase in debt value in EGP terms as it reaches EGP
13.7bn in 2016. Repayment of such loan within the previously agreed period would be impossible with the
company facing an expected liquidity crunch. We assume a 2-year grace period for the company and resched-
uling its debts over a longer period with the company hoping to repay at lower exchange rate. Furthermore,
we believe that the company would need overdrafts for the period between 2016-2019 in order to face this
liquidity crunch. For the first two years we expect average annual overdrafts of EGP 1.4bn which drops to EGP
666mn in 2018 reaching EGP 272mn in 2019. Applying the second scenario, where the government maintains
local selling prices at EGP 2,000/ton would require higher levels of short term debt at an average of EGP 1.4bn
for the period 2016-2021. Despite the higher sales following the added capacity the company would still not
be able to repay debt for at least two years due to its cash position. This is considered a major risk for the
company.
 FX loss in 2016: The Company is expected to record high FX loss in 4Q2016 and 2016 due to the revaluation of
its total debt. Despite FX gains recorded in 9M2016 we expect FX loss of EGP 5.4bn in 2016, which will lead to
a net loss. However, starting 2017 we expect the company to record FX gains with the exchange rate expected
to decline in the following years allowing the company to turn back to net profits.
PRIME INVESTMENT RESEARCH
MISR FERTILIZERS PRODUCTION COMPANY - SPOTLIIGHT
JANUARY , 2017
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
2015 2016 2017 2018 2019 2020 2021
LT Debt ST Debt
SCENARIO 2 LT & ST DEBT , EGP MN
-
5,000
10,000
15,000
2015 2016 2017 2018 2019 2020 2021
LT Debt ST Debt
SCENARIO 1 LT & ST DEBT , EGP MN
SOURCE: PRIME RESEARCH

4. 4
PRIME INVESTMENT RESEARCH
MISR FERTILIZERS PRODUCTION COMPANY - SPOTLIIGHT
JANUARY , 2017

5. 5
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PRIME INVESTMENT RESEARCH
MISR FERTILIZERS PRODUCTION COMPANY - SPOTLIIGHT
JANUARY , 2017