AKD Quotidian about — HUBC: FY12 Result Preview

Karachi, July 16, 2012 (PPI-OT): Hub Power Company Limited (HUBC) is scheduled to announce its full year FY12 results on 18th Jul’12.

According to AKD Securities expects the company to post earnings of PKR 8.15 billion (EPS- PKR 7.04) compared to PKR 5.42 billion (EPS- PKR 4.69) in FY11 – a growth of 50.2%YoY. The growth will emanate on the back of I) depreciation in PKR by 9.6%YoY in FY12 leading to increase in the company’s implicit return and ii) approval (albeit late) of new tariff for the company’s Narowal plant post COD, where Narowal contributes about PKR 1.18 billion (EPS impact: PKR 1.02) to AKD Securities’ full year earnings. The company has settled the much vaunted WHT dispute with the FBR at PKR 1.6 billion, which has led to some speculation of a lower payout by the company in 4QFY12. That said, with space available and Narowal earnings providing a cushion, AKD Securities expects the company to announce a dividend of PKR 2.5- PKR 3.0 per share along with 4Q results, taking full year cumulative dividend to PKR 5.5- PKR 6.0 per share. Over the past 3 months, the scrip has outperformed the broader market by 10.9% on the back of a likely proxy war in upcoming BoD elections to be held in Sep12. This follows the exit of National Power International Holdings BV with Dawood Group and ABL coming to the fore. At current levels, AKD Securities has an ‘Accumulate’ call on HUBC with a target price of PKR 50.2 per share.

Narowal tariff leading to an astounding growth of 50.2%YoY: Full year earnings are expected to clock in at PKR 8.15 billion (EPS – PKR 7.04) compared to earnings of PKR 5.42 billion (EPS- PKR 4.69) – a growth of 50.2%YoY. With a fixed return formula, the growth will primarily be derived from two avenues, I) increased index return as the PKR depreciated by 9.6%YoY against the greenback and ii) approval of Narowal tariff where the Narowal plant contributes approx. PKR 1.18 billion (EPS impact: PKR 1.02) to the total bottom-line. In this regard, NEPRA has already announced revised quarterly indexations from 3QFY11 to date where ROE component stands in the PKR 0.5465- PKR 0.5815 per KWH range and ROEDC stands in the 0.1120 to PKR 0.1191 per KWH range. Earnings Will also be augmented through arrears earned on trade debts overdue, where AKD Securities has factored in the overdue trade debts at PKR 85 billion.

Investment Perspective: Despite having paid PKR 1.6 billion in settlement for WHT case, the company is likely to have earnings of PKR 3.55 billion available for distribution as dividends (as per AKD Securities’ estimates). AKD Securities, therefore, expect the company to announce a dividend of PKR 2.5- PKR 3.0 per share, taking full year cumulative dividend to PKR 5.5- PKR 6.0 per share. Cash flow position, however, is another story and could dictate payout magnitude. Over the past 3 months, the scrip has outperformed the broader market by 10.9% on the back of a likely proxy war in upcoming BoD elections to be held in Sep’12. This follows the exit of National Power International Holdings BV with Dawood Group and ABL coming to the fore. At current levels, AKD Securities has an Accumulate call on HUBC with a target price of PKR 50.2 per share.