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Hub Power: 2QFY20 review – Loss on share transfer to GoB masks strong 2Q results

    Yusra Beg
    Yusra Beg

    Senior Investment Analyst

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    Intermarket Securities
    25 February 2020

    HUBC posted 2QFY20 consolidated NPAT of PKR5.5bn (EPS: PKR4.23), up 2.2x yoy, but sequentially lower. This took 1HFY20 Npat to PKR11.1bn (EPS PKR: 8.52), up 2x yoy. 2Q profits were marred by the one-off loss of PKR1.0bn on share transfer to the government of Balochistan for 1.5% stake in CPHGCL, without which the 2Q result would have been an EPS of PKR5.01 (up 17%qoq) which falls in line with street consensus.

    This is a decent result (excluding the loss), led by (i) higher gross profits (up 53%yoy) likely due to higher receipt of penal interest income and PKR devaluation vs. last year and (ii) strong profits from its associate (CPHGC). HUBC skipped dividends in line with expectations.

    2QFY20 review highlights 

    • Net sales clocked in at PKR10.6bn (down 19%yoy and 25%qoq) due to plant shut down.
    • Likely higher USD/PKR indexation vs. last year in addition to higher penal income cash receipts (similar to PKR2.1bn in 1QFY20) led to 53%yoy increase in gross profits to PKR7.0bn with GMs rising to 66% vs. 35% in SPLY.
    • HUBC’s associate CPHGC (1,320MW) became operational in May 2019, posting a second quarterly profit of PKR3.3bn, broadly in line with estimates.
    • This helped significantly cushion the impact of higher finance costs at PKR3.2bn (up 98%yoy, 4%qoq) on continued high working capital requirements.

    HUBC continues to perform at a higher clip with the commencement of CPHGC plant and consequent profits. While we believe there are some one-offs in this result, we expect continued improvement in earnings, particularly amid high penal income receipts. Dividends, however, are likely to remain depressed till late-FY21, in our view. 

    We have a TP of PKR134/sh on HUBC and reiterate our Buy rating on the name.