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The Bell about HUBC – Expansion related finance cost trim FY11 EPS

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by September 20, 2011 Brokerage

Karachi: Earnings below expectations; exciting payout: HUBC posted PAT of PKR5.4bn (EPS: PKR4.69), down 2.3% YoY, below Elixir Securities’ expectation of PKR5.5bn (EPS: PKR4.81).

According to Elixir Securities, 4QFY11 EPS stood at PKR0.99, down 21% YoY. The company declared final dividend of PKR3.0/share, taking full year payout to PKR5.5/share.

Lower Narowal earnings ahead of final tariff notification: Narowal is estimated to have posted loss of PKR161mn (PKR0.14/share) as adjusted tariff of Narowal is yet to be notified. This is PKR0.35/share lower than adjusted contribution expected at PKR0.21/share from the project. Hence, recurring EPS for HUBC is estimated at PKR5.16 for FY11.

Higher financial charges led to earnings decline: Finance costs for HUBC during FY11 stood at PKR3.4bn, up 89% YoY, mainly due to expensing out of financial charges associated with expansion projects’ debt. Interest cost associated with Laraib Energy Limited is estimated at PKR303mn for FY11, up 140% YoY. Finance costs for Narowal was also expensed during 4Q after COD, taking 4QFY11 interest charges to PKR1.4bn, up 116% QoQ.

Stronger tariff growth ahead: Indexed PCE for FY11 is estimated to have grown by 5% YoY, mainly by indexation factor growth as unindexed PCE was down 0.4% YoY. PCE for FY12 is expected to increase by 11% YoY, due to 3% growth in indexation and 7% built in growth in PCE tariff.

Investment Perspective: Elixir Securities had revised its FY12 EPS expectation of HUBC upward by PKR0.25 due to Narowal FY11 earnings differential to be booked during FY12, and have also revised its DPS forecast. HUBC is currently trading at FY12 PER of 6.8x, offering dividend yield of 14% for FY12. The scrip currently offers an upside of 21% to Elixir Securities’ Jun‐12 PT of PKR49/share and a real USD IRR of 15% over the remaining term of the Power Purchase Agreements.

 

Key Financials Outstanding shares: 1,157mn
(PKRmn)  FY10A FY11A  YoY(%)  4QFY10A 4QFY11A YoY(%)
Turnover  99,694 123,310 24% 27,949  42,981 54%
Operating Costs 92,006 114,093 24%  26,035 40,247  55%
Gross Profit  7,688 9,217 20% 1,914  2,734 43%
SG&A Expenses 391 437 12% 123 123 -1%
EBITDA 8,994 10,630 18% 2,215 3,190 44%
Operating Profit  7,296 8,780 20% 1,790 2,611  46%
Other income 53 27 -50% 16 11 -33%
Financing Costs 1,794 3,382 89% 542 1,482 174%
Net Profit 5,556 5,425 -2% 1,265 1,140 -10%
EPS (PKR)  4.80 4.69 -2% 1.09 0.99  -10%
DPS (PKR)  5.00  5.50 10% 2.50  3.00 20%

 

 

Lower Narowal earnings ahead of final tariff notification

Narowal is estimated to have booked loss of PKR161mn (PKR0.14/share) on the basis of initial tariff notified on May 23, 2008. The tariff of Narowal is subject to change at COD, and tariff adjustments are not yet notified by NEPRA. Realized contribution of Narowal is PKR0.35/share lower than adjusted contribution expected at PKR0.21/share. Hence, recurring EPS for HUBC for FY11 would have stood at PKR5.16. Elixir Securities expects an upward earnings’ adjustment of PKR0.35/share during FY12, after adjusted tariff will be notified.

Higher financial charges led to earnings decline

Finance costs for FY11 stood at PKR3.4bn, up 89% YoY. Increase in financial charges is the result of expensing out of interest costs during FY11 associated with Laraib Energy Limited and Narowal. HUBC funded its equity contribution in Laraib Energy Limited through debt, thus interest charges associated with Laraib energy during FY11 are estimated at PKR303mn (PKR0.26/share), up 140% YoY. Financial charges for 4Q stood at PKR1.4bn, up 116% QoQ due to expensing of interest costs associated with Narowal after the COD. Finance cost for Narowal during 4Q is estimated at PKR578mn, which accounted for 80% of QoQ increase.

Stronger tariff growth ahead

Indexed Project Company Equity (PCE) for FY11 increased by 5% YoY primarily due to indexation factor growth as unindexed tariff was down 0.4% YoY. Increase in indexation factor for was driven by PKR depreciation of 3% during CY10 and 2% growth in US CPI. PCE for FY12 is expected to increase by 11% YoY, mainly due to built in tariff growth of 8% YoY with indexation factor growth of 3% YoY.

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