HUBC: Eyes on the prize!
- We revisit our investment case on Hub Power Company Ltd (HUBC) post an eventful 3QFY19, where HUBC skipped dividends taking cumulative 9MFY19 payout to zero vs. 65% payout ratio in 9MFY18, despite ~PkR15bn of cash injection during the quarter (PkR200bn of sukuk issuance by GoP) and, PkR7bn raised through 12.01% right issue.
- The expected circular debt settlement (further PkR200bn by May’19 end) will liklely be directed towards retiring overdue payables to PSO, which stand at PkR45bn as of Mar’19, leaving little space for payouts in FY19F, but will create room to lever up for CAPEX investment (D/A: 40% as of Mar’19).
- HUBC has recently acquired 37% equity stake in 330MW local coal based Thal Nova power project (expected financial close by Jun’19), which will add PkR1.2/sh (12.5% of FY18 EPS) to HUBC’s bottomline post CoD, assuming 100% debt financed equity investment. We await financial close of the project before incorporating the same in our estimates.
- We highlight HUBC’s unique exposure in Pakistan’s IPP space, which will not only survive the FO based generation phase-out, but its timely investments will instead add to the stream of US$ hedged returns (5 year earnings CAGR: 28%). Our TP of PkR101/sh implies an upside of 44.6% on last close – Buy!
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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