Morning Call about – Best amongst the rest! – Arif Habib Limited

Karachi, February 26, 2013 (PPI-OT): Hub Power Company Limited (HUBC) is scheduled to announce its 1HFY13

According to Arif Habib Limited financial results on 27th February, 2013. Arif Habib Limited previews the company to witness a massive 49% YoY jump in net profit after tax to PKR 4,467mn (EPS: PKR 3.86) against net earnings of PKR 2,998mn (EPS: PKR 259) in 1HFY12. The top line of the company is expected to surge by 13% `icY to PKR S9bn in 1 HFY13E as the average plant utilization is foreseen around 75% compared with 69% same period last year. Similarly, the gross profit is also expected to reach PKR 7,997mn due to growing indexation factors, particularly 5% depreciating PKR/USD parity in 2HFY12.

The QoQ comparison is expected to reveal a different story. The sales figure is projected to decline 15% QoQ, as HLJBC’s old plant operated at a relatively lower load-factor of 68% in 2QFY1 3 (while Narowal plant’s utilization stood relatively unchanged QoQ at 73%). Arif Habib Limited estimates for 11% increase in OcO profitability lie upon anticipation of 15% QoQ lower finance cost and inclusion of generation bonus in December ending quarter (estimated at PKR 221mn, EPS impact PKR 0.19). Along with the result, Arif Habib Limited are looking forward to a cash dividend in the range PKR 3.25-3.5/share to be announced by the board.

Financial Highlights

PKR mn1HFY13E1HFY12AYoY2QFY13E1QFY13AQoQ
Sales

89,415

79,448

13%

41,098

48,316

-15%

Cost of Sales

81,418

72,577

12%

37,121

44,297

-16%

Gross Profit

7,997

6,871

16%

3,977

4,020

-1%

Administrative Expenses

181

187

-3%

90

91

-1%

Other Operating Income

12

31

-60%

9

3

3x

Profit from Operations

7,828

6,714

17%

3,896

3,932

-1%

Finance Cost

3,361

3,716

-10%

1,542

1,818

-15%

Profit before taxation

4,467

2,998

49%

2,353

2,114

11%

Profit after taxation

4,467

2,998

49%

2,353

2,114

11%

Earning per share (PKR)

3.86

2.59

2.03

1.83

Dividend per share (PKR)

3.25

3.00

3.25

Source: Company financials and Arif Habib Research

Transmission system tripped but no worries for Hubco…

The  country  faced  a  massive  blackout  on  24 th   Feb,  2013.  Based  upon  Arif Habib Limited  discussions  with  the  management,  Arif Habib Limited  does  not  foresee  any  significant  capital  expenditure  to  be  done  by  HUBC,  as  the  plant  remains  in  perfect  working  condition.  Moreover,  the  management  signals  no  downside  on  commercial  availability  of  power  plant  (as  capacity  payment  receipts  are  linked  to  plant’s  availability for power generation). Therefore, Arif Habib Limited rules out any near term negative  impact of this event on HUBC’s profitability.

Recommendation

Based on Arif Habib Limited Dividends Discount Model (DDM), Arif Habib Limited estimates HUBC to have a fair  value of PKR 58/share for Jun-13. The target price offers a capital gain of 12%  from  yesterday’s  closing.  Arif Habib Limited  also  anticipate  the  company  to  distribute  PKR  7/share  as  cash  dividend  during  FY13,  culminating  into  a  charming  dividend  yield  of  14%.  However,  due  to  its limited  upside  potential, Arif Habib Limited  has  a  ‘HOLD’  stance on the scrip!

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