Equity Analysis /
Pakistan

Hub Power: 3QFY21 analyst briefing takeaways

  • HUBC skipped dividends in 3Q due to ongoing delays in disbursement of overdue receivables

  • Coal projects remain largely on track to achieved COD by 2022

  • Coal conversion is a slow burner. We retain our Buy with a TP of PKR125/sh

Yusra Beg
Yusra Beg

Senior Investment Analyst

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Intermarket Securities
3 May 2021

HUBC held its Analyst Briefing Session today to discuss the progress of ongoing expansion projects and key developments. To recall HUBC posted 3QFY21 consolidated NPAT of PKR8.6bn for 3QFY21 (EPS: PKR6.61), up 19%yoy, and 5%qoq, taking 9MFY21 NPAT to PKR24.9bn (EPS PKR9.21) – above expectations. The deviation stemmed from marginally higher than expected indexation and lower late payment charges to fuel suppliers. HUBC did not announce any dividends, in line with expectations.

Key highlights from the briefing

Dividends skipped due to delay in receipts from GoP

HUBC skipped dividends in 3Q due to ongoing delays in disbursement of overdue receivables. The first installment of 40% for HUBC was due within 30 business days from signing which worked out to end-March 2021. The first installment of 40% for Narowal was due upon notification of the revised Tariff, which is yet to be notified in the official gazette by NEPRA. Complications arising from NAB’s ongoing investigation have deferred the approval for payments. That said, the GoP is committed to honoring the binding agreements and it is expected that ECC will soon make a decision. This may upset HUBC’s cashflows in the interim.

Water projects facing delays

HUBC is facing delays with the contractor for the waste-water projects. HUBC will work on revising its USP which could take 2-3 months before the bidding round with the award to be granted by year-end. The construction time could take up to 2-years. Regarding the water desalination, a change in core management in DHA Cogen has led to delays as they reassess the project. To this end, HUBC has prepared a proposal that would be submitted in the next few weeks.

Growth projects remain on track

CPHGC operated at a 65% load factor during 9MFY21 with plant availability at 94%. Application for CPHGC’s Tariff True-up is in the final stages with NEPRA. CPHGC has not paid out dividends as yet due to liquidity constraints led by the need to build up coal reserves ahead of the upcoming monsoon season. Shipment of equipment for Thar Energy remains on track where 60% of the construction is now complete and is expected to come online by March 2022. Construction work for ThalNova Power is 37% complete with COD targeted by 2Q CY22.

Coal conversion projects are a slow burner

HUBC has applied for an NOC with the GoP for NEPRA to admit a petition on the tariff which would determine whether the project would be viable for HUBC. HUBC is currently bound by its PPA till 2027 and in order to begin work on the PPA, Govt. approval is required. The NOC would allow two units to be carved out where HUBC has given the option to the Govt. (a) for termination or (b) through simple carving out of two units which would offload the Govt.’s liability to pay any further capacity payments. The Govt. is yet to approve the NOC, after which HUCB will look for financing.

Regarding ENI, HUBC will be picking up certain liabilities in terms of decommissioning of wells and taxation on acquisition. The details will be disclosed post Sep’21. Much of HUBC’s projects are seemingly delayed due to the current climate. Clarity on overdue receipts and dividends is expected to emerge in the upcoming ECC meetings, where HUBC remains hopeful of a favorable decision. We retain our Buy rating on HUBC with a TP of PKR125/sh.