Earnings Report /
Pakistan

Hub Power: Q3 FY 20 review – Higher indexation leads to earnings beat

  • HUBC posted Q3 FY 20 consolidated NPAT of PKR7,201mn (EPS: PKR5.55), up 2.3x yoy, and 31% yoy

  • This is a strong result, likely led by higher dollar indexation and receipt of penal interest income

  • HUBC trades at an undemanding FY 20f P/E of 3.77x, where we have a TP of PKR134/sh on the name; Buy

Yusra Beg
Yusra Beg

Senior Investment Analyst

Follow
Intermarket Securities
28 April 2020

HUBC posted 3QFY20 consolidated NPAT of PKR7,201mn (EPS: PKR5.55), up 2.3x yoy, and 31% yoy. This takes 9MFY20 NPAT to PKR18,253mn (EPS PKR: 14.07), up 2.1x yoy. This is a strong result, higher than our expected EPS of PKR5.01, primarily led by (i) higher gross profits (up 25% 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.

Key highlights:

  • Net sales clocked in at PKR11,820mn (down 12%yoy but up 12%qoq) due to plant shut down at both RFO based plants (Base and Narowal).
  • Higher-than-expected PKR/USD indexation vs. in addition to higher penal income cash receipts have led to 25%yoy increase in gross profits to PKR7,504mn with GMs rising to 63% vs. 45% in SPLY.
  • Profit from HUBC’s associate CPHGC, came in higher at PKR3,807mn vs. our projected PKR3,558mn.
  • This helped significantly cushion the impact of higher finance costs at PKR3,106mn (up 55%yoy, but flat qoq) required for working capital and financing of expansion projects.

HUBC’s performance continues to improve after the commencement of CPHGC plant, however management is unlikely to pay out dividends in the medium term particularly in the current macroeconomic climate, in our view. In light of the recent news flow regarding tariff revision for IPPs, we think Narowal seems more vulnerable among its plants (but negative impact will be moderate, in our view). HUBC trades at an undemanding FY 20f P/E of 3.77x, where we have a TP of PKR134/sh on the name. Buy.