Pakistan: HUBCO to post 16 percent earnings growth

Hubco PlantThis may sound too early but the time is right to decide investing in Pakistan’s largest independent power producer (IPP) Hub Power Company (HUBCO). A leading brokerage house, AKD Securities has suggested Accumulate stance with its June 2015 target price of PkR73/share that offers 14% upside potential.

Its recommendation stems from 1) likely 16%YoY growth in consolidated EPS to PkR7.9 backed by an uptick in PCE component and anticipated completion of overhaul before 4QFY15, 2) high probability of a continued payout and 3) a viable hedging opportunity on any Pak Rupee weakness against the US Dollar.

Brokerage house projects HUBCO’s consolidated profit after tax for FY15 around PkR9.1 billion (EPS: PkR7.9) as against net profit of PRK7.5 billion (EPS: PkR6.5) for FY14. Brokerage house also believes that FY15 projected earnings could have been higher by 20%YoY had non-pass through overhaul expenditures, required to augment efficiency levels of two generators (base plant), been completed last year.

Industry sources suggest that with PSO’s receivables at PkR230 billion, the Ministry of Finance is likely to inject up to PkR60 billion by paying the outstanding dues, which will ultimately be passed on to the power chain. Recent news reports indicate payment of PkR24 billion to IPPs. While further payments may continue to be piecemeal, as opposed to the bulk payment last year, it is opined that HUBCO’s dividend payments should remain unaffected.

HUBCO’s receivables on June 30, 2014 were PkR63.1 billion, almost 50% lower than receivables of PkR128.6 billion (highest ever) on June 30, 2012 when the company still maintained a payout of 88%. However, it is feared that regulatory impasse may delay Laraib’s dividend payments and affect its cash flow.


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