Hub Power Company Limited – 1QFY12 earnings in line with expectation

1QFY12 EPS at PKR1.07: Hub Power Company Limited announced its 1QFY12 results on October 25, 2011. The company posted PAT of PKR1.24bn (EPS: PKR1.07), down 2% YoY, slightly higher than our expectation of PKR1.2bn (EPS: PKR1.05).

Expansion related financial cost limited earnings: Finance cost for HUBC clocked in at PKR1.78bn, up 2.2x YoY, mainly driven by expensing of interest charges of Narowal (LT debt) during 1QFY12 as they were capitalized during 1QFY11 and disbursements of loan for equity injection in Laraib.

Narowal’s loss partly offset by net penal interest income: Narowal posted loss of PKR168mn (PKR0.15/share) due to revenue understatement. Narowal’s net penal interest income during 1QFY12 is estimated at PKR43mn (PKR0.04/share). We estimate that there were no operational savings realized by Narowal during the quarter.

Investment Perspective: HUBC is currently trading at FY12 PER of 6.3x, offering dividend yield of 15% for FY12. The scrip currently offers an upside of 31% to our Jun-12 PT of PKR49/share and a real USD IRR of 17% over the remaining term of the Power Purchase Agreements.

Expansion related finance cost limited earnings

Financial charges during 1QFY12 stood at PKR1.78bn, up 2.2x YoY, mainly due to expensing of interest charges on Narowal Long term debt and disbursement of debt associated with Laraib. Financial charges associated with Narowal project stood at PKR1.1bn, with interest cost on LT debt at PKR839mn, whereas finance cost on ST borrowings at PKR218mn. Interest cost on Long term loans of Narowal were being capitalized during 1QFY11. Additional ST financing was obtained for funding Narowal over dues during 1QFY12, as Narowal doesn’t enjoy extended fuel supplier credit due to fuel supply agreement with private fuel supplier. Financial charges on debt associated with Laraib stood at PKR146mn during 1QFY12, up 5x YoY as major disbursements were done during FY11.

Narowal’s loss partly offset by net penal interest income

Revenues for Narowal were booked on the basis of reference tariff, which resulted in a loss of PKR168mn (PKR0.15/share) for Narowal during 1QFY12. Narowal earns a positive spread of 2.5% on overdue receivables, as penal markup rate on overdue receivables is 3M KIBOR + 4.5%, whereas running facilities obtained for funding over dues are at a markup of 3M KIBOR + 2%. Net penal interest income for Narowal during 1QFY12 is estimated at PKR43mn (PKR0.04/share). Our estimates suggest that no operational savings were realized from Narowal operations during 1QFY12.

Economic & Political News

OGDCL receivables cross PKR93bn

OGDCL’s receivables mounted to PKR93.2bn, including an overdue amount of PKR57.7bn, which is adversely affecting the operations of the company

Oil prices reduced; diesel unchanged

The Government has reduced the prices of different petroleum products by up to PKR5.94/litre, effective from today. The price of HOBC has been reduced by PKR5.94/litre, petrol by PKR1.54/litre, Light Diesel Oil by PKR1.53/litre and kerosene by PKR0.86/litre. However, no change has been made to prices of High Speed Diesel oil at PKR94.15/litre. New petroleum product prices would be Petrol PKR87.41/litre, HOBC PKR106.71/litre, Kerosene PKR84.65/litre and LDO PKR81.99/litre.

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