EUR 10.00 For Business Accounts Only

Hub Power Company (HUBC): 4QFY18 EPS Rs2.4, -9% YoY (-7%QoQ); DPS Rs2.8/share (In-line with Expectations)

• For 4QFY18, HUBC’s consolidated earnings declined by 9% YoY, primarily due rise in finance cost and higher effective tax rate. The company also announced dividend of Rs 2.8/share along with the result.
• Revenue declined 3% YoY due to lower generation and on the other hand operating expenses decreased by 4% YoY in 4QFY18. We attribute this decline in expenses to absence of any major overhaul and lower O&M expenses.
• HUBC recorded gross margins at 18.6% in 4QFY18, up by 80bps YoY. The improvement in gross margins can be attributed to PKR depreciation and lower maintenance cost.
• Finance cost has increased by 19% YoY to Rs 1.2bn, as the company has been relying on short term borrowing in a rising interest rate environment.
• Further dent to profitability came from 82% YoY higher taxation, which took HUBC’s effective tax rate for 4QFY18 to 6.9% compared to 3.6% in the same period last year.
• FY18 earnings grew by 3% YoY which were primarily driven by PKR depreciation, lower repairs and maintenance cost.
• Keys risks to our investment thesis are 1) lower than expected rupee devaluation; 2) delay in commissioning of upcoming projects, and 3) circular debt pileup.