HUBC: At a crossroads, (AKD Daily, Sep 04, 2020)
AKD Daily
HUBC_At a crossroads
· Assessing the impact of recently signed MoUs by HUBC, our back of the envelop calculations for fixing RoE/PCE component of Narowal/Base plant at US$/PkR rates of 168/148 suggest potential downward revision in TP by PkR10.0/sh.
· Meanwhile, Narowal plant is expected to switch to ‘Take and Pay’ agreement after competitive trading agreement comes into effect, which would result in another downward revision of PkR7.0/sh in our valuation (assuming capacity payments linked to load factor of 20% vs. plant availability factor of 95%).
· Renegotiations of RoEs of the CPEC power projects (46% owned CPHGC and 60% owned TEL) is expected to have more serious repercussions, where the two plants contribute 36/75% to HUBC’s power portfolio’s cumulative RoE in FY22/FY28F (base plant PPA expires in FY27).
· We await clarity on RoEs of CPEC power projects before updating our investment case. Meanwhile, the impact of current MoUs for Narowal/Base plant will not deter us from our Bullish stance on the scrip.
AKD Research
Hub Power Company is a holding company. Through its subsidiaries, Co. is engaged as a power producer in Pakistan that focuses on developing, owning, operating and maintaining power stations. Co. supplies electricity to Water and Power Development Authority and National Transmission and Despatch Company under long term Power Purchase Agreements for its Hub and Narowal plants respectively.
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