In recent quarters, recovery rates have exceeded 100%, significantly improving HUBC’s cash flows. Additionally, the government has settled receivables for HUBC’s FO-based plants following amendments to their PPAs, leading us to increase our DPS estimates for FY25-27f by c. 50%. This translates into an attractive dividend yield of 14/16% in FY26/27f.

§  HUBC, in partnership with Mega Conglomerate Pvt. Ltd, is entering the Pakistani EV and PHEV market through a strategic collaboration with BYD. With its assembly plant set to launch in 2026, HUBC is well-positioned to capitalize on EV adoption and localization opportunities, driving medium-term growth.

Upgrade to Buy with a revised TP of PKR149/sh.

We revise our dividend estimates for Hub Power Co. Ltd. (HUBC) by c.50% over FY25-27f and raise our TP by c.25% to PKR149/sh, upgrading the stock to Buy. However, our earnings estimates are broadly unchanged. The revision reflects a stronger dividend outlook, driven by improved recoveries for coal-based IPPs and the settlement of PKR36bn in pending dues following the premature termination of the base plant. Our revised DPS estimates for FY26/27 stand at PKR18.0/20.4, translating into an attractive dividend yield of 14/16%, well above 3-year PIB rate of 12.1%. Ongoing government-IMF discussions to clear the PKR2.4tn power sector circular debt could serve as an additional catalyst. Given HUBC’s substantial exposure to coal and hydropower (91% of total capacity) and cumulative receivables of PKR81bn (PKR28/sh for HUBC’s stake), the company is poised to be the biggest beneficiary among listed power producers, if circular debt clearance proceeds.

HUBC has signed settlement agreements of FO based plants

Following the early termination of its PPA, HUBC has received PKR36bn (net of payables), enabling a substantial reduction in borrowings. More recently, its subsidiary, Narowal Energy Ltd. (NEL), signed a settlement agreement with the government, transitioning from a take-or-pay to a hybrid take-and-pay arrangement, effective November 2024. Under this structure, NEL will continue receiving capacity payments on 35% of its total capacity, while payments beyond this threshold will be tied to actual offtake. As part of the agreement, NEL is set to receive all outstanding receivables, with an expected inflow of PKR9bn (PKR7/sh). This and improving recoveries from coal-based plants strengthen our near-term dividend outlook for HUBC. Moreover, the Project Commercial Date (PCD) for Thar coal plants remains pending; however, we expect them to achieve PCD in FY26, which should further enhance payouts.

Auto venture to come online next year

HUBC, through its subsidiary Hub Power Holding Ltd. (HPHL), holds a 50% stake in Mega Motor Company (MMC), marking its strategic entry into Pakistan’s EV and PHEV market. MMC has signed a Master Supply & Manufacturing Agreement and a Technical License Agreement with BYD, a leading Chinese automaker. The assembly plant, currently under construction, is set to commence operations in 2026, with a total project cost of US$150-170mn (PKR 21-24bn for HUBC’s stake)—significantly lower than our initial US$300mn estimate. This lower capital outlay enhances HUBC’s financial flexibility, allowing it to sustain strong dividend payouts while diversifying its revenue base. Our estimates suggest the project’s NPV stands at PKR35/sh. However, we await further clarity on the upcoming auto policy before fully incorporating it into our forecasts.

Courtesy – IMS Research