The Hub Power Company (HUBC) Global

Pakistan Research
Projects to add lucrative synergies Daily Update
April 07, 2016

Planned projects to benefit from synergies Buy

The Hub Power Company Limited (HUBC) has entered into a JV with China
Power International Holding Limited (CPIH) for the development of 2*660 MW Jun16 TP - PKR 105/sh
coal-fired power plants at Hub. HUBC plans to have a 26% of equity interest in
the project with an option to increase it to 49% any time before its COD, which
is expected FY20. HUBCs investment outlay for the project will be PKR 16.5bn
(26% stake) and our preliminary estimates suggest that the investment will add
PKR 2.43/sh towards the companys bottom-line. During the projects initial Bloomberg code HUBC PA
years, we expect the company will benefit from fuel savings and lower O&M TTM Avg Daily Vol. (mn shares) 93.01
expenditures. We also expect HUBC to benefit from the synergies provided to TTM Daily Vol.(USD mn) 0.01
the company due to its location next to its existing plant and also because of Market Cap. (PKR mn) 122,682
HUBCs stake in Sindh Engro Coal Mining Company (SECMC). Incorporating Market Cap. (USD mn) 1,172
all the benefits and synergies, we estimate HUBCs stake to add value of PKR Shares (mn) 1,157.15
18.0/sh. Index Weightage (%) 4.35
Beta 0.68
Switching to lucrative avenues via SECMC
Free Float (%) 75%
HUBC has agreed to invest USD 20mn (6% stake) in SECMC to develop the
Thar coal mine, which will have an initial capacity to mine 3.8mn MT of coal
annually. SECMCs is expected to provide a USD based IRR of 20%,
incremental earnings of PKR 0.32/sh and a value of PKR 3.5/sh.
Demerger of Narowal plant
HUBC has decided to demerge the Narowal plant, which has a capacity of Price Performance
220MW. Narowal contributes around 20% to HUBCs earning with a per share 25%
impact of PKR 1.10/1.86 during FY14/15, respectively. Considering its current 20%
distributable income (see the table below) and assuming a discount factor of
15%
15%, we value the Narowal plant at PKR 18.0/sh. It is worth noting that the
company has a BVPS of PKR 8.20 in the books of HUBC. Moreover, HUBC 10%

should be able to cash out PKR 2bn for every 10% divestment of Narowal. 5%
0%
Distributable Dividend (PKR mn) FY14 FY15 FY16E FY17E FY18E

Apr-15

Jul-15

Oct-15
Aug-15
Sep-15

Nov-15
Dec-15
May-15
Jun-15

Jan-16
Mar-15

Feb-16
Mar-16
ROE 1,545 1,507 1,559 1,620 1,685 -5%
ROEDC 342 334 345 359 373 -10%
Fuel savings 98 114 83 28 10
Total distributable dividend 1,985 1,954 1,988 2,006 2,068
DPS (PKR) 1.72 1.69 1.72 1.73 1.79 HUBC KSE 100 Index
Source: Company Accounts, Global Research

O&M Saving from Hub Power Services Ltd

HUBC has taken over its O&M operations rather than outsourcing since
2QFY16. The company has also sent a notice to Tenaga National Berhad
Repair and Maintenance Company for discontinuation of O&M for its Narowal
Board Meetings
plant. HPSL will take over its O&M of Narowal plant from 4QFY16. HPSL will 07-Apr-16 Bestway Cement Limited
also be managing O&M of its new 2X660 MW coal based power plant once its 09-Apr-16 Agritech Limited
production starts. Due to economies of scale, we believe company will be able 21-Apr-16 Kot Addu Power Co. Ltd.
realize substantial O&M savings. 26-Apr-16 Linde Pakistan Limited
Valuation
Our Jun16 TP for the share stands at PKR 105/sh, offering a dividend yield of
10%. We will incorporate HUBCs investment the coal-fired power plant once
financial close and HUBCs stake are finalized. BUY!
FY14 FY15 FY16E FY17E FY18E
EPS (PKR) 5.66 8.51 8.41 9.82 10.51 Ajay Kumar
DPS (PKR) 8.00 9.50 9.00 10.00 10.50 ajay.kumar@gslpk.com
P/E 18.73 12.45 12.60 10.80 10.08
+92.21.3245.7543
P/B 3.91 3.84 3.93 3.95 3.95
Div. Yield (%) 7.62 9.05 8.57 9.52 10.00
Earnings Growth (%) 50.45 -1.18 16.73 7.05
ROE 21.09 31.14 31.45 36.96 39.54

www.jamapunji.pk

Please see page 2 for important disclosures Research Entity Notification Number: REP-029
 Global
Pakistan Research
Daily Update

About the company

The Hub Power Company Limited is a Pakistan-based Independent Power Producer (IPP). The Company
develops, owns, operates and maintains power stations. It operates in three reportable segments on the
basis of power plants: the Hub plant, Narowal plant and Laraib plant (Hydel power plant). The Company
owns an oil-fired power station with an installed capacity of 1,292 megawatt (MW) at Mouza Kund, Hub in
Balochistan and a 225 MW oil-fired power station at Mouza Poong, Narowal in Punjab. It also holds 75%
controlling interest in Laraib Energy Limited which owns and operates an 84 MW hydel power plant near the
New Bong Escape, 8 kilometer downstream of Mangla Dam in Azad Kashmir. International Power Global
Developments Ltd, a subsidiary of GDF Suez, is the operator of the Hub plant. TNB REMACO Pakistan
(Private) Limited (TNBRP), through its subsidiary TNB Repair and Maintenance Berhard SDN BHD
(Remaco), is the operator of Narowal plant.

Global Securities Pakistan Ltd.

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www.gslpk.com
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