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Karachi, July 20, 2012 (PPI-OT): Payout rises as Narowal comes online in FY12
Hubco recently announced its FY12 financial result posting net earnings of PKR 8,190 million (EPS: PKR 7.08) compared to PKR 5,425 million (EPS: PKR 4.69) in FY11, a rise of 51% YoY.
According to Arif Habib Limited, the company has also declared a final cash dividend of PKR 3/share, accumulating a total payout of PKR 6/share in FY12. FY12 has been an eventful year for the company with the commencement of operations of 214MW Narowal project, decision by the High Court against the company and divestment of shares by the sponsors.
Tax payment made but still hoping for refund
According to the management, the company has paid PKR 1.6 billion amount related to tax not levied at time of issuance of shares to the sponsors. Consequently, this has resulted in the payout ratio dropping from 100% or above to 85% in FY12. However, after the decision of the High Court against the company, the latter has filed an appeal in Supreme Court and believes the amount paid will be refundable once SC decision comes. Consequently, it has not expensed this amount yet and has booked it as receivable.
Finance Cost up by 2.1x
Hubco’s finance cost has risen by 2.1times from last year to PKR 7.1 billion. However, a major portion of this cost is associated with debt of Narowal project which is a pass through. The company had acquired PKR 6.0 billion loan to finance the equity portion of the Narowal project whose interest cost is not covered under PPA and is not a pass through.
FY13 dividends to grow by 16% YoY
Hubco FY13 dividend payout is expected to jump to PKR 7.0/share. This rise is anticipated as the company’s ROE portion (Project Company Equity) is likely to augment by a further 5% after witnessing an increment of 11% in FY12. Narowal project whose post CoD tariff was recently notified my NEPRA is expected to yield PKR 1.04/share in FY13. Moreover, anticipated PKR depreciation of 3% in FY13, against which IPPs returns are hedged, is expected to magnify the company’s earnings.
Laraib Project Update
Hubco owns 75.1% stake in Laraib Energy Limited which is constructing an 84MW run of the river hydel project by the name of New Bong Hydro. The project is located 8km downstream of Mangla Dam. It is expected to be completed by June-13, since the Power Purchase Agreement (PPA) states that CoD is required to be achieved within 42 months of financial close, which was in Dec-09.
Recommendation
At yesterday’s closing price of PKR 43.54/share, HUBC is offering a prospective dividend yield of 16.1% in FY13 and an upside of 23% to Arif Habib Limited’s Dec-12 target price of PKR 53.7/share. Arif Habib Limited maintains Arif Habib Limited’s bullish stance on the scrip.