EUR 4.23 For Business Accounts Only

Hub Power Company (HUBC): 2QFY19 EPS Rs2.1, -16% YoY (-17%QoQ); 1HFY19 EPS 4.7, +2% YoY (Below expectations)

• For 2QFY19, HUBC’s consolidated earnings declined by 16% YoY to Rs2.1/share, primarily due rise in finance cost. Moreover, the company did not announce any dividends for the outgoing quarter due to liquidity crunch brought about by circular debt as well as equity requirement for upcoming projects, we believe.
• Revenue declined 52% YoY due to lower generation (Hub and Narowal plant) as the government focused on producing power from fuels other than furnace oil.
• HUBC’s gross margins increased to 35% compared to 17% in the same period last year which is attributable to PKR depreciation, we believe.
• Finance cost has risen to Rs1.6bn, up by 42% YoY as the company continues to rely on short term borrowing in a rising interest rate environment.
• Furthermore, share in loss from associate increased from Rs62mn to Rs133mn, up 2.1x which further dragged down the bottom-line.
• 1HFY19 earnings grew by 2% YoY which were primarily driven by PKR depreciation and lower admin & other expenses.
• 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.