Hub Power Company Ltd (HUBC) is expected to report a consolidated profit after tax of PKR10.1bn (EPS: PKR7.75) for 2QFY25, which will be a sharp decline of 47% QoQ and 34% YoY, primarily due to the early termination of its Base plant’s PPA. The Base plant accounted for around 35% of HUBC’s total capacity and contributed 35-40% to its earnings until FY24. The 2Q results will take 1HFY25 NPAT to an estimated PKR29.2bn (EPS: PKR22.50), down 10% YoY. Alongside the results, HUBC is likely to announce a dividend of PKR3.0/sh for 2QFY25 (nil in 1Q). However, the possibility of a higher payout cannot be ruled out, as its associate, China Power Hub Generation Company (CPHGC), is expected to have declared dividends of about PKR19bn during the quarter (equivalent to PKR7.0/sh for HUBC’s stake).
Key expectations for 2QFY25 results:
§ Net revenues are estimated at PKR13.6bn, declining 58% sequentially. This is primarily driven by the early termination of the base plant’s PPA and lower power demand amid the winter season. The company dispatched 991GWh (equivalent to c.450 MW) against 1,148GWh (c.520 MW) in the previous quarter.
§ During the quarter, HUBC signed a settlement agreement with the GoP to voluntarily terminate the PPA of its Base plant (effective 1 Oct 2024), about 2.5 years before its expiry. As a result, the gov’t cleared all past dues net of LPIs. As per the agreement, HUBC would receive c.PKR35bn (PKR27/sh), after which the gov’t will not be obligated to make any further capacity payments (CPP) for the Base plant. This may improve HUBC’s cash flows in the near term, but the absence of those CPPs amid ongoing expansions (BYD JV) can lead to subdued dividends in the near term, in our view.
§ Share of associate earnings is expected at PKR9.7bn with a QoQ decrease of 6%. We understand that HUBC received a dividend of PKR8.8bn (c. PKR7/sh) from its associate CPHGC, which will support its cash position amid a major expansion project.
§ Finance cost is estimated at PKR3.5bn, down 36% QoQ. This is primarily due to the expected decrease in short-term borrowings following the above settlement and ongoing monetary easing (cumulative cut of 450bps during the quarter).
HUBC’s payouts are expected to resume in 2Q, as the company received dividends from its associates. However, dividends are expected to remain subdued soon following the early termination of its base plant, which contributed 35-40% to its profits. PCD (lenders’ condition to issue dividends) of Thar coal-based plants is still pending.
HUBC’s diversification in BYD will also be a cash drain in the near term, hence keeping dividends restricted. We estimate the BYD venture to have an NPV of PKR35/sh, but we have not incorporated this in our estimates. We have a Neutral rating on HUBC.
Courtesy – IMS Research
