Intermarket Pulse: HUBC: Meaningful progress in expansion projects; Buy
- We resume coverage on HUBC with a Buy rating and SOTP based TP of PkR146/sh. We have incorporated the valuation impact of (i) PkR10/sh for the company’s 60% stake in Thar Energy Limited (TEL) and (ii) higher stake of 46% in the China Hub Power Generation Limited (CPHGCL).
- Despite the company’s decision to divest 40% of TEL’s stake, the total equity investment for upcoming power projects has increased, amounting to PkR32.9bn (as compared to PkR27.5bn previously), given an increased stake in the JV for 1320MW. We believe HUBC will be able to raise debt for the major portion of this investment.
- With strict deadline of commissioning in CY19, the company has initiated construction before financial close (Sep’17) by curtailing payouts in FY17. We expect the dividends curtailment to continue near-term (FY17F DPS: PkR8/sh; D/Y 6%).
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.
Intermarket Securities Limited (IMS) is a full service corporate brokerage firm based in Karachi, Pakistan. We service both domestic and international clients. IMS was ranked #2 Best Local Brokerage and #3 Best for Overall Country Research for 2016 by AsiaMoney.
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