Morning Call about – Electrifying earnings growth! Arif Habib Limited

Karachi, February 28, 2013 (PPI-OT): With Hub Power Company Limited (HUBC) announcing its 2QFY13 financial result yesterday, Arif Habib IPP universe has concluded its result period.

According to Arif Habib Limited an analysis of collective result reveals a 16% QoQ decline in the revenue. Nishat group power companies reported an improvement in sales because of higher QoQ load factor, while the bigger HUBC and KAPCO dragged the total figure due to QoQ decline in plant utilization.

Nonetheless, gross profit improved by 3% compared with previous quarter primarily on the back of depreciating PKR/USD parity, in addition, gains from fuel efficiency and Operations and Maintenance (O and M) savings were also available to smaller IPPs’. An overall 3% increase in net profit margin was observed in the group, a part of which is attributed to TFC issued in Sep-12, which helped in shrinking finance cost to PKR 4bn.

Arif Habib IPP Universe (HUBC, KAPCO, NCPL, NPL) PKR mn

Financial Highlights 2QFY13 QoQ 1HFY13 YoY
Sales

74,766

-16%

163,521

11%

Gross profit

10,327

7%

19,997

17%

G.P margin

14%

3%

12%

1%

Finance cost

4,115

-25%

9,589

-23%

Other operating income

1,283

-31%

3,146

-29%

Profit before taxation

7,170

23%

12,980

50%

Profit after taxation

6,213

25%

11,179

48%

N.P margin

8%

3%

7%

2%

Source: Company accounts and Arif Habib Research

Results full of surprises!

All power companies from Arif Habib Limited research coverage witnessed surprising growth  (36-58%)  in  net  profitability.  HUBC  led  the  flock  with  58%  YoY  jump  in  profit  after tax, attributable to the growing indexation factors and ROE component. On  the  other  hand,  lower  payables  to  fuel  supplier  and  resultantly  lower  penal  interest  provided  major  support  to  KAPCO,  pushing the  net  profitability  up  by  36%  YoY.  As  far  as  Nishat  group  companies  are  concerned,  rising  fuel  cost  magnified  the  impact  of  fuel  efficiency,  which  combined  with  O and M  savings  further  improved  the  profitability.  However,  dividend  from  KAPCO  and  NPL  disappointed  the  optimistic  investors.  Arif Habib Limited  believes  the  dividends  to  rise  in  2HFY13  for  these  companies,  providing  investor  with  greater  value  at  the  financial year end.

Snapshot 1HFY13 PKR/share
Company EPS YoY DPS YoY FY13 DY
Hub Power Company Limited

4.10

58%

3.5

17%

13%

Kot Addu Power Company Limited

4.18

36%

3.0

-20%

13%

Nishat Chunian Power Limited

3.86

38%

2.0

33%

14%

Nishat Power Limited

3.78

57%

1.0

0%

13%

Source: Company accounts and Arif Habib Research

Sector outlook and recommendation

The electricity sector recently has remained in the limelight indicated by a run-up for interim cash dividends. The lowest dividend yield in Although RSI is once again showing divergence with the prominent upward trend, intraday price behaviour observed suggests a move towards 18,240. Therefore Arif Habib Limited remains biased towards new highs despite caution advocated by RSI. Immediate support is expected to be raised to 17,964 whereas 17,895 is the pivot for now. On the other hand, levels around 18,126 and 18,178 can potentially pose resistance. Universe is still higher than the yield offered by treasury securities making us tilt Arif Habib Limited likeness towards the sector. The latest results have further strengthened Arif Habib Limited positives views, so Arif Habib Limited are in process of updating Arif Habib Limited financials models and will update Arif Habib Limited readers soon!

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