HUBC posted 1QFY21 consolidated NPAT of PKR8.14bn (EPS: PKR6.28), up 46%yoy, and up 20%qoq. This is a decent result by HUBC pulled by higher profits from its associate – CPHGC and higher US$ indexation. The result is above our projected 1QFY21 EPS of PKR5.64 with the deviation primarily stemming from lower than expected tax expense at PKR935mn vs. expectation of PKR1.5bn. Results were accompanied with a surprise interim dividend of PKR4.0/sh –last dividend announcement took place in Jun’18 which we expect may have been paid out partly through the recent Energy Sukuk II disbursement and in anticipation of upcoming receipt of sukuk issuance and settlement of receivables.
1QFY21 Result Highlights:
Net sales have increased 12%yoy to PKR15.8bn despite shutdown at HUBC’s base plant. However, Narowal operated at a weak load factor of c. 24% vs. 4% in 4QFY20 and 27% SPLY, while Laraib (hydro power plant) operated at c. 19% during 1Q vs. 15% same period last year. The low demand of RFO based offtake is due to NTDC’s merit order pushing the expensive fuel based plants further down the list.
Higher USD/PKR indexation vs. last year and penal income cash receipts led a 9%yoy rise in gross profits to PKR8.1bn vs. expectation of PKR7.7bn.
Share of profits from associates came in lower than projected at PKR3.5bn, lower 27%qoq (but up 86%yoy) and vs. expectations of PKR4.25bn on lower profits from CPHGC.
Finance costs came in lower than expected at PKR1.9bn down 38%yoy, supported by lower interest rates.
Lower than expected profits from CPHGC has led to a lower taxation charge on accrued dividends to the holding company HPHL. Consequently overall tax expenses clocked in at PKR935mn vs. expectations of PKR1.5bn.
Surprise PKR4.0/sh dividend announcement
The dividend announcement is a welcome development (although sustainability is uncertain) and has perhaps been paid from the recently disbursed Energy Sukuk II (PKR1.9bn paid to Laraib, PKR8.7bn in EPP to CPHGCL) and ahead of expected overdue receipts from the Government of Pakistan – similar to other IPPs, which have announced dividends. That said, this comes at a time when HUBC’s debt-to-asset ratio is at 35% and on the eve of a third PKR6bn sukuk issuance for financing requirements of 330MW Thar Energy and Thal Nova.
Outlook
Earnings should continue to improve with rising share of profits from the CPHGC plant; however, cash flows may only improve sustainably through substantial capacity payoffs from the Government of Pakistan – recently agreed upon in the MoU. We maintain our liking for HUBC with a June’21 TP of PKR125/sh.
Intermarket Securities Limited.