Morning Call about Hub Power Company Limited Electricity – Arif Habib Limited

Karachi, July 06, 2012 (PPI-OT): Earnings to jump up by 20% in FY12

The Board of Directors of Hub Power Company Limited (HUBC) is scheduled to meet on July 18, 2012 to approve its FY12 results.

According to Arif Habib Limited expects the company to post profit after tax (PAT) of PKR 6,484 million (EPS: PKR 5.60) for FY12 as against of PKR 5,425 million (EPS: PKR 4.69) in FY11, depicting an increase of 20% YoY. This improvement in earnings is mainly attributable to revised tariff of Narowal Project, 6.5% YoY devaluation of PKR against USD and 11% YoY increase in PCE (ROE) component during the period. With post CoD tariff notified by NEPRA in Jun-12, Arif Habib Limited expects Hubco to revise upwards its Narowal contribution to PKR 0.9/share in FY12 earnings. Arif Habib Limited expects that company will also announce a final dividend of PKR 2.30/share, taking the total dividend for the year to PKR 5.30/share

Higher financial charges and tax adjustment will erode 4Q earnings

In 4QFY12, Arif Habib Limited expects company will declare PAT of PKR 1,511 million (EPS: PKR 1.31) as compared to PKR 1,974 million (EPS: PKR 1.71) earned in 3QFY12 projecting a decline of 23% QoQ mainly due to a 9% QoQ increase in financial charges and PKR 1.62 billion (PKR 1.40/share) adjustment of withholding tax in relation to issuance of shares against the project development cost.

Hub Power Company Limited – Financial Highlights PKR million
 

4QFY12

3QFY12

%Chg

FY12

FY11

%Chg

Turnover

49,768

44,370

12%

173,586

123,310

41%

Operating Cost

46,290

40,594

14%

159,461

114,093

40%

Gross Profit

3,478

3,776

-8%

14,125

9,217

53%

Other Income

0.402

0.286

41%

32

27

19%

General and Admin Expenses

102

98

4%

387

437

-11%

Finance Costs

1,865

1,705

9%

7,286

3,382

115%

PAT

1,511

1,974

-23%

6,484

5,425

20%

EPS

1.31

1.71

-23%

5.60

4.69

20%

Source: AHL Research

Financial charges are expected to augment by 115% YoY

HUBC’s earnings are expected to erode as financial charges of the company are projected to jump by 2.15x YoY, due to the interest on loan acquired to finance equity portion of Narowal project, penal interest charged by Pakistan State Oil on late fuel payments and increased short term borrowings due to the circular debt, which will affect the profitability of the company.

Recommendation

Based on Dividend Discount Model Arif Habib Limited’s target price for Dec-12 works out to PKR 53.20/share, which offers an upside potential of 25.7% from its last closing price of PKR 42.33/share. Beside the attractive upside potential, the stock offers FY12E dividend yield of 12.5%. Thus Arif Habib Limited recommends BUY.