HUBC_Moving the goal post for payouts, (AKD Daily, Mar 06, 2020)
AKD Daily
HUBC: Moving the goal post for payouts
- We revisit our investment case on Hub Power Company Ltd (HUBC) post release of detailed financial accounts. HUBC posted 124%YoY higher 2QFY20 NPAT of PkR5.5bn (EPS: PkR4.23), doubling 1HFY20 NPAT to PkR11.05bn (EPS: PkR8.52).
- We tweak our earnings estimates for HUBC by incorporating (i) transfer of 1.5% stake to GoB, and (ii) long term sukuk issue of PkR7bn. Despite that, our revised FY20 EPS is slightly up, as we also incorporate higher earnings contribution from 1,320MW CHPGC (from PkR8.0bn to PkR10.7bn).
- Going forward, we believe dividend resumption from the IPP will rejuvenate investor interest in the scrip. Approximately PkR7-8bn investments remain to be undertaken for 2x330MW projects, which will be catered through delaying payouts till FY21F (vs. previous expectation of minor payout in FY20F).
- ECC has approved issuance of PkR200bn Energy Sukuk II on 22nd Jan’20, followed by competitive bidding by Islamic banks. The portion of capacity payments (PkR34bn or 38% of total receivables as of Dec’19) cleared in upcoming settlement will be a better indicator of HUBC’s payout capacity in FY21, instead of the total quantum of settlement, in our view.
- With news reports suggesting a potential PPA revision, we stress test our model for its repercussions. Assuming even 50% reduction in HUBC’s capacity payments till PPA expiry brings down our TP to PkR126/sh, still implying an upside of 36% at last close. We reinstate our Buy stance on HUBC with our TP of PkR160/sh, implying an upside of 73% at last close.
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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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