HUBC financial briefing today

The Hub Power Company Limited (HUBC) conducted its analyst briefing session today to discuss 2QFY21 financial result and outlook. To recall, the company recorded an increase of 1.50x YoY in consolidated profitability to PKR 8.2Bn (EPS: PKR 6.32) in 2QFY21, taking aggregate earnings for 1HFY21 to PKR 16.3Bn (EPS: PKR 12.60), up 1.48x YoY. The company also announced a cash dividend of PKR 3.0/sh in 2QFY21.

Key takeaways from the briefing are summarized below:

Reasons behind improvement in earnings during 1HFY21 were: 1) exchange rate indexation due to devaluation of rupee, 2) lower finance costs (↓ 43% YoY), and 3) higher share of profits from CPHGC.

On an unconsolidated basis, project management income from Thar Energy Limited (TEL) and dividends from Hub Power Holding Ltd. ( HPHL) led to an earnings growth of 3.40x YoY in 1HFY21.

As per the management, Thar Energy project is under progress and is 60% completed, whereas the ThalNova power project is 34% completed. The expected date of completion for both the projects was Mar’21. However, due to COVID-19 related lockdown and the staggering capacity payments by the government, the expected COD has been delayed to Jun’22.

On the other hand, the capacity of coal mine (SECMC) in commercial operations stands at 3.8MTPA out of the total 15.2 capacity. Commenting on the water projects, the management mentioned that the construction for water recycling project will commence in next 4-5 months.

Moreover, the company is also currently in process of evaluating the technical feasibility of the DHA Cogen Limited project. It will generate 84MW of electric power for K-Electric, and 3.0Mn gallons per day of water for Cantonment Board Clifton.

The management also mentioned that HUBCO and Narowal Energy Limited (NEL) have signed MoU agreements with the government on 11th Feb, 2021. The payment of overdue balances is to be made in 2 instalments, with each instalment to be paid in both cash and financial instruments (PIB/Sukuk).

For HUBCO agreement, the exchange rate and inflation indexations on ROE are to be fixed at PKR/USD and US CPI as of Aug’20, and this indexation is expected to continue till PKR/USD reaches 168.6.

For the Narowal agreement, the ROE is to be fixed at 17% in the PKR terms with the equity converted at PKR/USD 148.

The first payment for HUBCO agreement is expected in third week of March, whereas for the Narowal agreement, the tariff needs to be negotiated with NEPRA after which the timeline for payment will be determined.

We maintain our BUY call on HUBCO with our Dec’21 TP of PKR 110.0/sh, which implies an upside of 30% from the last close.

Courtesy -BMA Capital Management Ltd.

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