Kot Addu Power Company Limited: No surprise in 2Q; reiterate Underperform
- We maintain our estimates for KAPCO given no major change in company’s earnings outlook post 2Q financials & management’s re-affirmation of no new capex on cards.
- During 2QFY18, KAPCO posted earnings of PKR2.52 (up 2/20% QoQ/YoY) where the growth mainly stems from lower fuel losses driven by lower load factor (58% vs 64% in 1QFY18).
- In the backdrop of GoP considering complete resolution of circular debt, we believe this may lead to clearance of upto 70% overdue receivables of KAPCO and may have a negligible impact on earnings, in our view. This is unlikely to change company’s cash payout.
- We retain our ‘underperform’ stance on KAPCO with DDM-based TP of PKR52 premised on; (i) ambiguity over extension of PPA, (ii) significant delay in privatization of KAPCO, and (iii) absence of expansion plans. KAPCO provides D/Y of 15% (FY18E), 710/640bps higher than HUBCO’s D/Y and 10-Yr PIB.
- Risks to our thesis include: (i) above-anticipated depreciation of PKR against USD, (ii) dip in fuel prices which will lead to lower fuel losses, (iii) increased reliance on gas leading to lower fuel losses, and (iv) extension of PPA for at least 10 years.
Kot Addu Power Co Ltd. Kot Addu Power Company Limited is a Pakistan-based power generation company. The Company's principal activities are to own, operate and maintain a multi-fuel fired power station with approximately 15 generating units with a nameplate capacity of 1,600 megawatts (MW) in Kot Addu, District Muzaffargarh, Punjab, Pakistan. The Company also sells the electricity produced therefrom to a single customer, the Pakistan water and power development authority. The power plant is a multi-fuel gas-turbine power plant using three fuels to generate electricity: gas, light sulfur furnace oil and high speed diesel. The plant's combined cycle technology enables it to use the waste heat from the gas turbine exhaust to produce steam in the heat recovery steam generator, which in turn is used to run the steam turbines.
BMA is amongst the leading financial groups in Pakistan. BMA Capital’s core areas of business include Capital Markets, Corporate Finance & Advisory, Asset Management, and Financial Products Distribution. BMA Capital is the leader in privatisation advisory in Pakistan, having successfully advised on over 50% of all privatisations in Pakistan, by value, in transactions valued in excess of US$4 billion. Recent transactions include joint lead managing the $813 million GDR Offering of 10% of OGDCL on the London Stock Exchange in 2006-07, and advising Etisalat on their successful acquisition of a 26% strategic stake in Pakistan Telecommunications Company Limited (PTCL) for US$2.6 billion, the largest M&A transaction and foreign direct investment in Pakistan’s history. The firm is among the top brokers in the Pakistan equity and treasury markets, and is among a handful of firms that comprehensively cover all segments of the capital markets. This is supported by a very strong and independent research capability, which is quoted regularly in both local and international media. BMA Capital’s retail brokerage brand, BMA Trade, has launched a nationwide network of branches as well as a comprehensive online trading platform, enabling investors across Pakistan to take part in the capital markets.
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