HUBC – 1HFY11 EPS to fall 2% YoY due to lower generation bonus

1HFY11 EPS expected at PKR2.43; DPS at PKR2.5: HUBCO’s board meeting for announcement of 1HFY11 results is scheduled on February 22, 2011. We expect the company to post PAT of PKR2.8bn (EPS: PKR2.43) for 1HFY11, down 2% YoY along with an interim cash dividend of PKR2.50/share. 2QFY11 earnings are expected at PKR1.5bn (EPS: PKR1.33), down 12% YoY.

Declining generation bonus to curtail earnings: We expect generation bonus of PKR225mn (PKR0.19/share) for CY10, down 39% YoY, because of comparatively lower load factor at 7,723Gwh (73%), down 7% YoY. Load factor during 4Q is expected at 60.1%.

PCE growth- driven by PKR depreciation: Project Company Equity (post indexation) is expected to grow by 5% YoY, mainly due to indexation with respect to PKR/USD depreciation up 5.6% YoY. PCE as per tariff would be up a mere 0.22% YoY for 2Q, US CPI down 0.4% YoY.

Concerns over circular debt persist: We expect receivables and payables to grow to PKR86bn and PKR81bn respectively, by the end of 2QFY11, as circular debt remains unresolved.

Declining generation bonus to curtail earnings

We expect generation bonus of PKR225mn (PKR0.19/share) for CY10, down 39% YoY, based on the assumption of 7,723Gwh generation in CY10. This shall be PKR0.13/share lower than estimated generation bonus of PKR0.33/share last year. HUBCO’s generation during 9MCY10 stood at 6,130Gwh, as reported by the company. We have assumed 60.1% load factor for the last quarter, on the basis of provisional monthly generation figures released by NEPRA, which translates into annual generation of 7,723Gwh.

PCE growth driven by PKR depreciation

We expect PCE (Project Company Equity) payments from WAPDA to increase by 5% YoY during 1HFY11 mainly due to PKR depreciation of 5.6% YoY. PCE component of tariff, maintaining its level, would be up a mere 0.22% YoY in 1HFY11. Indexation factor shall be up 5% YoY primarily on the back of PKR depreciation of 5.6% YoY and 0.4% decline in US CPI for CY09 (applicable for CY10 revenues).

Concerns over circular debt persist

We expect receivables and payables to grow up to PKR86bn and PKR81bn respectively, by the end of 2HFY11, as circular debt remains unresolved. With half yearly payouts, HUBCO would likely have utilized PKR2.2bn of average internal cash in funding overdue receivables during 2Q. We estimate net penal markup income for the quarter to stand at PKR88mn (PKR0.08/share).

Economic & Political News

Margin Trading System to have around 20 eligible stocks

The Margin Trading System (MTS), lately approved by Karachi Stock Exchange Board, will have approximately 20 eligible stocks, the document of MTS revealed. Finance (borrower) will be required to pay his “Equity Participation Ratio” (EPR) which is 25% or VaR (whichever is higher) of the value of trades. The cost of leverage (MTS rate) will be max of 6 months KIBOR + 8% and will be determined by the market forces. Leverage buy orders will be inserted through separate key. MTS funding will be for a maximum of 2 months.
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