PPI Original Text (PPI-OT) – Morning Call about Hub Power Company Limited – Arif Habib Limited : AsiaNet-Pakistan

PPI Original Text (PPI-OT) – Morning Call about Hub Power Company Limited – Arif Habib Limited

[ 0 ] May 31, 2012 | | Share:

Karachi, May 31, 2012 (PPI-OT): HUBC offers a combination of growth and Defence

Hub Power Company Limited (HUBC) through a notice to Karachi Stock Exchange (KSE) has informed that company will pay PKR 1.62bn to FBR under amnesty scheme, in order to settle pending tax amount in relation to issuance of shares against the project development costs.

According to Arif Habib Limited, this will consequently result in FY12 earnings to decline by PKR 1.40/ share and thus will reduce the payout of the company by PKR 1.0 per share. However going forward Arif Habib Limited remains upbeat for the company as it will witness growth from rising PCE component and hedge against PKR depreciation, approval of Cod tariff of Narwhal and commissioning of Lariat hydel power plant by Jun-13.

Rising PKR Deprecation and PCE component will result in higher earnings Under the power purchase agreement, HUBC dollar based returns are hedged against PKR/USD parity. Since start of FY12 Pak Rupee has depreciated on average by ~8.4% to PKR 93.2. With the two of IMF instalments paid along with rise in oil imports has brought the USD/PKR parity under pressure. PKR is likely to remain under pressure due to bleak external account outlook. Arif Habib Limited believes that PKR/USD parity will hover in a range in 95-96 by the end of Dec-12. Moreover, Project Company Equity (PCE), which determines company’s returns, will augment by 5% in FY13 compared to a rise of 11% in FY12.

Future Dividend Stream paints a rosy picture
Due to the tax issue Arif Habib Limited believes that dividend for FY12 will remain at lower side. Arif Habib Limited expects the company to pay a dividend of PKR4.9/share in FY12. However going forward due to growth emanating from above mentioned factors, company will be able to payout handsome dividend. Arif Habib Limited expects in FY13 company will distribute a dividend of PKR 6.6/share while in FY14 a dividend of PKR 6.9/share is expected. This will translate into very attractive dividend yield of 16.6% and 17.8% respectively.

Earnings to revise upwards after approval of Cod tariff of Narwhal project
Currently, Narwhal returns are being under reported as NEPRA is yet to notify post Cod tariff. Arif Habib Limited believes that the NEPRA will announce the post Cod tariff by the end of 4QFY12 or in 1QFY13. Currently Arif Habib Limited expects project to contribute PKR 0.95/share in HUBC’s consolidated FY12 earnings. Going forward post Cod tariff will boost the company’s earnings and its dividend payouts. Arif Habib Limited will revise Arif Habib Limited’s valuation once NEPRA approves the post Cod tariff for Narwhal project.

Recommendation
Based on Dividend Discount Model Arif Habib Limited’s target price for Dec-12 works out to PKR 50.4/share, which offers an upside potential of 26% from its last closing price of PKR 39.85/share. Beside attractive upside potential, the stock offers FY12F dividend yield of 12.3%. Thus Arif Habib Limited recommends BUY.

Category: Brokerage

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