Intermarket Pulse: HUBC: Much needed breather in face of rising circular debt
- We have raised our earnings estimates for FY18/19F by 4-5% due to higher penal income. We maintain Buy stance at our revised TP of PRs139/sh (previously PRs137/sh), which implies 42% upside on last close.
- Overdue receivables for HUBC have reached PRs90bn as of Dec’18; if they surpass PRs100bn mark, it may trigger lower than expected dividends from the IPP, in our view, because it will imply peak debt levels prior to circular debt settlement in Jun’13, while cash flows will likely be prioritized for the expansion projects.
- The reported approval of PRs80bn financing plan for the energy sector may slow down further pile up of circular debt in FY18. However, we have prudently revised down our FY18/19F DPS to PRs7.0, in light of government's stance to curtail FO based power generation which could delay timely capacity payments to the IPPs.
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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