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PPL & HUBC_1QFY21 Result Previews, (AKD Daily, Oct 22, 2020)

AKD Daily

PPL & HUBC: 1QFY21 Result Previews

Depleted profitability as production normalizes: PPL is slated to report 1QFY21 results on 23rd Oct. (Friday) where we expect the firm to report NPAT of PkR12.2bn (EPS: PkR4.47/sh) receding 15%YoY but up 12%QoQ, backed by erratic realized oil/gas price shifts (stemming from COVID-19 induced supply-demand shocks as benchmarks reverted back to 40-50/bbl band during 1QFY21) and moderate indexation movements (~2% firmer PkR/US$ during 1QFY21). Major underlying aspects of forecasted performance include: 1) -17%YoY decline in sales where recent development outlays on older fields (particularly Sui) managed to sustain production at levels seen during 1QFY20 while rising ~12/13%QoQ for Gas/Oil, 2) subdued exploration expenses as compared to three dry wells booked last year only one is expected for this quarter, bringing exploration expenses down 54%YoY, and 3) absence of exchange gains (possibility of minor losses) and depreciative impact of drastic monetary easing on interest income from debt instruments, pulling other income down to PkR665mn (-71%QoQ/-29%YoY). In the absence of any additional Sukuk payment to clear circular debt through primary fuel suppliers (primarily gas), we highlight continued illiquidity, where on June’20 accounts Day Sales Outstanding stood at 633 days, its highest point ever.

HUBC to arrive at 1QFY21 EPS of PkR4.86, up 13% YoY: We expect Hub Power Company Ltd (HUBC) to post 1QFY21 NPAT of PkR6.3bn (EPS: PkR4.86), up 13%YoY, but down 7%QoQ. The increase in 1QFY21 earnings will be driven by: (i) PkR2.50/sh contribution from its 46% owned CPHGC plant, up 73% YoY, and (ii) 33%YoY decline in finance cost amid lower interest rates. On the flipside, higher effective tax rate of 11% in 1QFY21 vs. 1% in the same period last year is expected to keep the bottomline growth in check. HUBC has announced PkR6bn sukuk in Oct’20. However, despite the aforementioned development, expecting a payout from the IPP at this stage would be preemptive in our view. We foresee payout to resume in 2HFY21F, especially if MoUs with GoP firm up into agreements by the deadline of Feb’20. On a sequential basis, 20% QoQ dip in finance cost may outweigh the impact of lower net penal income, where decline in earnings should come from lower income from associate. We have a Buy stance on HUBC with our TP of PkR160/sh, implying an upside of 97% at last close.

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