1HFY12 EPS at PKR2.59: Hub Power Company posted PAT of PKR2.99bn (EPS: PKR2.59), up 5% YoY for 1HFY12 and also announced a robust interim dividend of PKR3/share beating market expectations. 2QFY12 EPS stood at PKR1.52, up 12% YoY.
Higher gross profit and finance cost indicate increased over dues: Variation in gross profit matched variation in financial charges which suggest that overdue receivables would likely have increased during the quarter and funded via ST borrowings. HUBC earns a positive spread of 2.5% on Narowal over dues. However, spread on hub plant over dues varies from -0.8% to 1.45%.
Project company equity to grow 10% HoH in 2HFY12: Project company equity of Hub plant is estimated to have risen by 3% HoH during 1HFY12, due to 3% built in growth in project company equity of Hub plant. However, Project company equity for 2HFY12 is expected to increase by 10% HoH, mainly driven by inbuilt growth of 4% and 5% growth in PCE indexation factor.
Weak price performance during CY12 to date offers an entry opportunity: HUBC has underperformed the market by 3.7% during CY12 to date, as it has risen by 4.6%, where KSE-100 index gained 8.3%. Robust interim dividend and final tariff would likely address concerns related to company’s performance. HUBC is currently trading at FY12 PER of 6.0x, offering FY12 dividend yield of 17%. The scrip currently offers an upside of 42% to our Dec-12 PT of PKR51/share and a real USD IRR of 20% over the remaining term of the power purchase agreements. BUY!
Higher gross profit and finance cost indicate increased over dues
Gross Profit and finance costs during 2QFY12 were higher than our estimates by PKR0.38/share. Variation in gross profit and finance cost by similar amount suggests that overdue receivables were funded with short term borrowings. When HUBCO funds its overdue receivables with ST borrowing, markup from WAPDA/NTDCL is recorded in top line, which is offset by higher finance cost.
Overdue receivables associated with Hub plant receive markup at discount rate (currently 12%) + 2% from WAPDA. Markup on hub plant related ST borrowing ranges between a spread of 0.75% to 3% above one month KIBOR (currently 11.8%). Overdue receivables of Narowal are entitled to penal markup at 3MKIBOR + 4.5% from NTDCL. Markup on ST borrowing for Narowal is + 2% above 3M KIBOR (currently 11.7%). This arrangement suggests that HUBC would earn a spread of 2.5% on Narowal over dues. However, spread on Hub plant over dues (higher than Narowal) would vary depending on net cost of ST borrowing realized and vary in the range of -0.8% to 1.45%.
Project company equity to grow 10% HoH
Project company equity component of Hub plant tariff is estimated to have risen by 3% HoH during 1HFY12, due to 3% HoH built in growth in project company equity of Hub plant as average PKR/USD exchange rate remained flat during 2HFY11 (applicable for 1HFY12 revenues). However, Project company equity for 2HFY12 is expected to rise by 10% HoH, primarily on the back of 4% HoH growth in unindexed project company equity and 5% growth in indexation factor. Growth in indexation factor is expected on the back of 2% PKR deprecation during 1HFY12 and US CPI growth of 3% during CY11.
Economic & Political News
Pakistan’s forex reserves fall to USD16.69bn
Pakistan’s foreign exchange reserves fell to USD16.69bn in the week ending Feb 3, compared with USD16.87bn the previous week, the central bank said on Thursday
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