AKD Quotidian about — HUBC: FY11 Result Preview

Karachi: Hub Power is scheduled to announce its full year result on 8th September 2011.

According to AKD Securities expects the company to report consolidated NPAT of PkR5.47bn versus NPAT of PkR5.47bn in the corresponding period last year. The bottom-line translates into earnings of PkR4.73/share versus PkR4.74/share in the same period last year, flat YoY. Earnings are expected to come in lower due to financial charges on delayed COD of Narrowal as well as pending finalization of tariff which is expected to be completed by the end of September 2011 due to delayed COD in April 2011 (a delay over 12 months). Tariff adjustments to reconcile with actual costs are likely to be booked once final tariff is notified by NEPRA. Alongside the result, AKD Securities expects the company to announce a final DPS of PkR2.3-2.5 taking full year payout to PkR4.8- 5.0/share (trailing dividend yield of 12.1%). AKD Securities reiterates AKD Securities’ liking for Hubco which offers a solid defensive/growth combination with a forward dividend yield of 14.0% (FY12F) led by tariff uptick and capacity addition. At current market price, the stock offers an upside of 4% to AKD Securities’ target price of PkR42.O/share implying a total return of 18% over the next 12 months – Accumulate!

Floods take their toll on cotton crop; production estimates slashed upto 20 %
Untimely monsoon rains have destroyed the prospects of a bumper cotton crop for FY12 where initial loss estimates range from 1mn bales (APTMA estimate) to 2.5mn bales (KCA estimate). The whole episode has a déjà vu feeling attached to it as last year, although initial crop prospects were healthy, actual crop production was severely dented by devastating floods. Last year, major flooding occurred in two leading cotton producers (China & Pakistan) that resulted in an international cotton price rally that saw global cotton touching an all- time high of US$2.4/lb. In contrast, flooding this year has only been limited to Pakistan. From this vantage, AKD Securities does not see a recurrence of the cotton price rally of the scale witnessed in FY11.

However, a brief rally in cotton, particularly on the domestic front, cannot be ruled out. While yarn manufacturers saw their profitability sky rocket in FY11, for FYI2F AKD Securities expects composite manufacturers to outperform others as margins of value added segments would increase with relatively lower cotton prices. Accordingly, AKD Securities retains AKD securities’ positive bias towards NML where our target price of PkR69/share offers an upside of 49%. Buy!