Pakistan IPPs: Favor NPL over NCPL in a tougher macro environment
- We revisit our investment case on Nishat IPPs, while incorporating revised USD/PKR and Furnace oil price assumptions. With USD hedged ROEs and fuel savings and penal income linked to FO price, this has led to an upward earnings revision for both IPPs to the tune of 10-12% over next 3 years. However, we have revised down our DPS estimates in the face of immediate cash constraints.
- Our new TPs for NPL and NCPL are PRs36/sh and PRs25/sh respectively, implying a Buy call on NPL. We prefer NPL given lower reliance on short-term borrowing for fuel requirements and payouts. To emphasize, any piecemeal settlements may result in better chance for NPL to resume payout than for NCPL.
- That said, cash constraints call for a bear-case sensitivity analysis, whereby we believe both the IPPs can still maintain PRs2.0/sh payouts sustainably. This translates into a D/Y of 6.9% for NPL and 7.6% for NCPL as compared to 3 year PIB rate of 7.0%. However, we believe declining utilization level of the plants should lead to lower working capital requirement in medium-term, thus freeing up cash post FY20F.
Nishat Chunian Power Ltd. Nishat Chunian Power Limited is a Pakistan-based power generation company. The principal activity of the Company includes building, owning, operating and maintaining a fuel fired power station having gross capacity of 200 megawatts and net capacity of 195.722 megawatts at Jamber Kalan, Tehsil Pattoki, District Kasur, Punjab, Pakistan. The Company's project is a 200 megawatts residual furnace oil (RFO) fired reciprocating engine technology combined cycle power plant. The primary components of the plant has approximately 11 engine sets of type 18V46 manufactured by WARTSILA Finland, and one heat recovery steam turbine and alternator sets manufactured by Converteam and ABB. The primary fuel of the plant is RFO. The Company is a subsidiary of Nishat (Chunian) Limited.
Nishat Power Limited is a Pakistan-based company, which as an independent power producer (IPP). The principal activity of the Company includes building, owning, operating and maintaining a fuel fired power plant based on Reciprocating Engine Technology having gross capacity of 200 megawatts in Jamber Kalan, Tehsil Pattoki, District Kasur, Punjab, Pakistan. The Company is a subsidiary of Nishat Mills Limited. The Company, through its subsidiary, Lalpir Solar Power (Private) Limited, is engaged in building, owning, operating, and maintaining or investing in a solar power project having gross capacity up to 20 megawatt peak (MWp) with net estimated generation capacity of approximately 19 MWp. Its project site is located at Mehmood Kot, Muzaffar Garh district.
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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