HUBCO highe value still intact. Earning ~PKR95bn is expected over the next three years

AHCML Research has reviewed HUBCO’s performance and future efforts to increase revenue. Analysts believe that HUBCO’s higher value is still intact. Earnings ~ of PKR95 bn are expected over the next three years. The government is considering terminating Independent Power Producers (IPPs) contracts due to contract breaches and evolving energy sector dynamics.

HUBCO is expected to earn ~PKR95bn in revenue over the next three years, with PKR 53bn currently receivable from CPPA-G.
Reports suggest the government may aim to terminate the agreement immediately, potentially jeopardizing future revenue.
However, a negotiation between the government and HUBCO is anticipated, and a middle-ground solution is sought.

If an agreement is reached, possibly with a discount on future revenues, it may benefit HUBCO by:

I will receive the total amount sooner, avoiding the risk of these funds being absorbed by circular debt.
Providing the company with liquidity for new investments or to repay interest-bearing debts.

Medium-Term Options

Renewable energy

HUBCO, through its wholly owned subsidiary HPHL, has been prequalified for KE’s 200MW wind/solar hybrid project.
HPHL has been pre-qualified for 150MW + 120MW of Sindh Solar Energy Project (SSEP) for power off-take by KE ▪ HUBCO is aggressively participating in bid submission for these renewable projects.

Energy Storage System & Charging Infrastructure

Opportunities in the application of Battery Energy Storage Solutions (BESS) and the development of charging infrastructure are being explored.

Exploration & Mining Projects

Through a JV agreement with Ark Metals (Pvt.) Ltd., the company plans to explore opportunities for exploration and development of mineral mines in Pakistan ▪ Moreover, through its JV company Prime, the Company is exploring E&P business opportunities both locally and internationally

Electric Vehicles Landscape

HUBCO, through its wholly owned subsidiary HPHL, has established Mega Motor Company (Private) Limited (MMCL)

MMCL has entered into a Distributorship Agreement with BYD Auto Industry Company Limited for the launch of BYD New Energy Vehicles (NEVs) in Pakistan
MMCL is also negotiating a Technical Licensing Agreement with BYD and plans to establish an assembly plant in Sindh
EVs will not only provide customers with an alternate option but also help reduce the country’s fuel import bill and decrease GHG emissions.

Strategic Options

Collaborate with other IPPs to negotiate better terms.
Pursue international arbitration if negotiations fail.

Financial Options

Restructure debt to improve financial stability.
Attract new investors or increase existing shareholders’ stakes.
Adjust dividend payouts to maintain cash.

Achievement/Alternate to PPA

The availability of Thar plants remained significantly better than the minimum required under the PPA.
HUBCO’s Thar coal-based power plants, i.e., TEL and ThalNova, completed their first full year of operations
HUBCO’s joint venture, CPHGC, disbursed its second dividend of USD 80m in May 2024.
The total dividend from July 2023 to June 2024 is USD 150m, of which HUBCO’s share was USD 69Mn.

Segment Analysis

The Group has four major segments: the power generation business, which includes the Hub plant, Narowal plant, Laraib plant, and Thar plant; the operations and maintenance business; and investments in CPHGC, TEL, TNPTL, SECMC, Prime, and CPHO.

Courtesy – AHCML Research