HUBC: Catalysts aligned for price performance
- Potential sell-off from Islamic mutual funds (6% of freefloat), largely due to rising debt financed equity investments has kept a cap on HUBC’s price performance (–11% in 3M). However, the release of detailed financial accounts indicate HUBC’s conventional debt to asset (33%) comfortably below the levels allowed by Shariah compliance criteria of 37%.
- Meanwhile, ‘penal income’ at 11% of total revenues may potentially hinder Shariah board in giving a clean chit to the IPP, where HUBC’s management argues the aforementioned ‘non-compliant’ penal income is being derived from rising receivables, which are not within the company’s discretion.
- The upcoming Nov’19 Shariah review could be a key check point for HUBC, where revenue growth from US$ indexed income and possible pick-up in fuel costs could bring down penal income’s contribution from current levels.
- Our bullish stance on the stock stems from USD hedged ROEs on HUBC’s 1,650MW coal power projects translating into 3 yr earnings CAGR of 42% (ThalNova Power project not incorporated yet, financial close expected in Dec’19). Piecemeal payouts are expected to resume in 2HFY20. Our TP of PKR140/sh implies 91% upside on last close – Buy!
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.
AKD Securities Ltd. is one of the leading securities firm in Pakistan, providing a comprehensive range of investor focused services, including equity brokerage, economic and securities research, investment banking and financial advisory services. AKD Securities accounts for more than 6% of the average daily value of the Karachi Stock Exchange. AKD Securities was the first brokerage house to launch an online trading platform in Pakistan in November 2002 and now has the largest market share with over 6000 customers. This has helped diversify and expand the retail investor base in the country and ushered in a whole new universe of investors to the stock market.
AKD Securities Ltd. caters to a diversified group of domestic and international institutional investors, high net worth individuals and upscale retail clients, including expatriate Pakistanis. With high quality research, unparalleled execution and distribution capability for both regular and large block trades, AKD Securities Ltd. has earned an outstanding reputation in the Pakistani securities industry.Outside of commercial banks, AKD Securities Ltd. is one of the biggest capital market firms in the country. AKD Securities is the leader in raising and providing risk capital in underwriting, market making and mergers and acquisitions in Pakistan. Good corporate governance and professionalism are emphasized throughout the firm and AKD Securities Ltd. is amongst the very few companies to have introduced a firm-wide comprehensive CODE of ETHICS, overseen by an independent compliance manager.Ultimately, our success is based on the quality of service we provide to our customers and the trust and confidence reposed in us by them. Our focus, therefore, remains on customer satisfaction at all levels in the company.
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