HUBC_Base plant up for sale; Buy stance maintained, (AKD Daily, Dec 04, 2020)
AKD Daily
HUBC: Base plant up for sale; Buy stance maintained
- HUBC’s management has reportedly proposed GoP to buy its base plant at a transaction price of PkR65bn (PkR50/sh). While we ignore the reported book value on unconsolidated basis, summing the PV of future cashflows from base plant, net receivables and plant’s value as reported in Jun’20 financial statements, the 1,200MW Base plant should be valued at PkR91/sh, in our view.
- We believe the management proposed a lower value for the sale of Base plant as a result of uncertainty on realizing capacity payments for the remaining PPA period (FY21-FY27), on account of being lower on the merit order list.
- In the aforementioned context, even a discounted price seems to be a great way out for HUBC base plant. However, we fail to see how the management would respond to SAPM’s counter proposal i.e. (i) coal conversion (which would itself cost PkR36bn) and water desalination plants, as well as (ii) sell-off of assets of Base plant, all in return for PkR65bn. The GoP’s counter proposal seems to be disregarding any future cashflows from the Base plant.
- While we currently value HUBC on DDM basis, we have also provided SoTP valuation sans 1,200MW base plant (PkR88/sh). Adding immediate settlement of net receivables of PkR22/sh, gives us a cumulative valuation of PkR110/sh (30% upside at last close). Materialization of sell off transaction of base plant would be over and above this value.
- While we would continue to incorporate the developments as they happen, our back of the envelop workings suggest HUBC may be able to weather through the current uncertain times. We maintain our Buy call on HUBC.
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