After incorporating better than expected earnings during 9MFY13, the market observers revised their profitability estimates of Hub Power Company (HUBCO) for FY13. InvesCap analyst Hassaan Bin Ghafoor anticipates bottom-line of the company to grow by 11%YoY to Rs 9.86bn (EPS Rs8.6).
“We believe the aforementioned surge is emanated from i) linearly trimming financial charges ii) higher penal mark up income booked by Narowal and iii) PKR depreciation against the greenback,” said the analyst.
However, hiccup in the availability of funds to purchase FO for Narowal Plant along with risk of liquidated damages due to shut down of the Narowal Plant most of the time during Feb-Apr 13 would screech the bottom line of the company. The company posted a growth of 7% YoY in topline by reporting revenues of Rs 132 billion during 9MFY13. “We attribute such rise in revenues to i) Increase in FO prices by 3.5%YoY and ii) higher load factor,” he said. In 9MFY13, HUBCO’s power plant generation was stood at 6,052GWh depicting a mere growth of 6%YoY in comparison with similar period last year. While Narowal Plant has utilised its capacity of only 795GWh during the said period, it is down by 17%YoY, lowest since start of its operation.
Since the mid of 3QFY13 the Narowal plants has been operating at a capacity of 22% and despite under-sized power generation contribution by Narowal plant, the total generation mirrored an increase of nominal 3%YoY during the period.
According to National Transmission & Distribution Company (NTDC), the current power shortfall remains at 4,500MW-6,000MW. “We believe the newly elected government will not leave this matter unattended,” the analyst said adding apart from raise in power tariff, the only instant solution to minimize load shedding is to resolve circular debt issue. HUBCO, being the second largest power player in Pakistani IPP’s space, would benefit the most if any liquidity is injected in the energy chain.
“We assume this liquidity injection would further enhance the company’s payout capacity therefore higher dividend payments in future cannot be ruled out,” said the analyst. The scrip has appreciated by 11% since elections on the back of any immediate resolution of circular debt. “We maintain our expectation towards company’s FY13 payout of Rs 7.0/share, translating into a dividend yield of 11.0%,” the analyst said. After rolling forward, the Dec-13 TP of HUBCO would work out to the tune of Rs 64.2/share, offering a mere upside potential.
