Earnings Report /
Pakistan

Hub Power: FY19 results: In-line, dividends skipped as expected

    Yusra Beg
    Yusra Beg

    Senior Investment Analyst

    Intermarket Securities
    12 September 2019

    Hub Power Company Ltd (HUBC) posted consolidated 4QFY19 NPAT of PKR2,663mn (EPS: PKR2.05- based on ex-right shares), down 4%yoy and 16% qoq taking FY19 NPAT to PKR11,241mn (EPS: PKR8.67), up 2%yoy. Earnings came in-line with our expectation, where sharp PKR devaluation and penal income markup on outstanding receivables helped offset high finance costs. HUBC skipped dividends, in-line with expectation.

    Net sales came off 47%yoy to PKR13,789mn in 4QFY19, driven by low dispatch levels at both of HUBC's RFO based plants (Base plant: 5% in 4QFY19 vs. 58% in SPLY, Narowal: 24% vs. 99% in SPLY). This was led by lower demand by the purchaser (NTDC) for RFO based plants. 

    5% qoq PKR devaluation during the quarter led to higher dollar denominated returns, while delays in PKR200bn Sukuk issuance led to higher penal income on overdue receivables during the quarter. Operating profit thus rose 27%yoy.

    This helped offset impact of higher finance costs (debt for equity investment in upcoming power projects). Finance costs have crossed the PKR7bn mark (highest ever-in a year). 

    Note that HUBC has evidently has not booked provisions, as SECP has exempted certain Energy sector companies until Jun’21. 

    We expect a minor payout in FY20f followed by bumper dividends in FY21f (D/Y: 20%+) led by CPHGC. HUBC trades at undemanding valuations (FY20f P/E of 5.6x), and we have a TP of PKR130/sh on the name, Buy.