Hub Power Company Limited (PSX: HUBC) is one of the largest private power projects in the country. The company is listed on the Pakistan Stock Exchange with it its Global Depository Receipts (GDR's) also listed on the Luxembourg Stock Exchange.
The principal activities of the firm are to develop, own, operate and maintain power stations. It operates through two segments: Power Generation business, which includes the Hub plant, Narowal plant and Laraib plant, and Operations and Maintenance business, which includes Hub plant and Narowal plant.
HUBC is an independent power producer (IPP) with a combined installed power generation capacity of over 1,600 megawatt (MW). It owns an oil-fired power station of 1,200 MW (net) in Balochistan, which is the Hub plant, and a 214 MW (net) oil-fired power station in Punjab, which is the Narowal plant. Its Hub Plant is a residual fuel oil (RFO)-fired thermal power plan, which supplies electricity to the National grid. Its Narowal Plant is also an RFO-fired, combined cycle power station.
Additionally, the company holds 75 percent controlling interest in Laraib Energy Limited, which owns and operates a run-off-the-river hydel power Plant near Mangla Dam in Azad Jammu and Kashmir.
Company investments The company has established wholly owned subsidiaries; these include: Hub Power Holdings Limited (HPHL), which has been incorporated to invest in the imported coal based 2x660 MW power project and future expansion initiatives. Then there is Hub Power Services Limited (HPSL) that has been incorporated to manage O&M of its existing power assets, its upcoming coal project and explore O&M business opportunities onshore and offshore. Narowal Energy Limited is also a subsidiary that has been incorporated to take over the assets and liabilities of Narowal plant post its demerger.
HUBC also has established a wholly-owned subsidiary Thar Energy Limited (TEL) to set up a 330 MW mine mouth power plant at Thar. It is also investing in Sindh Engro Coal Mining Company Limited (SECMC), a joint venture between Engro, Thal Limited, HBL, CMEC, HUBC and Government of Sindh, to develop a coal mine at Thar.
Shareholding and stock performance Dawood Hercules has been a major shareholder of HUBCO since 2012 when the IPP's initial sponsors Xenel International and National Power International exited from their 12.1 percent and 17.4 percent shareholding, respectively in 2012. At that time, Dawood Hercules Corporation and its affiliates bought most of this given up shareholding - 16.42 percent stake to be precise.
Hub's share performance of late can be linked to the expected changes in its shareholding pattern as it is likely to see its key shareholder and sponsor - Dawood Hercules divest soon, which has been considering to offload 14.91 percent shareholding in the IPP. This is not the only change HUBCO will take on; the IPP is also to divest it 40 percent stake in Thar Energy Limited; it has offered 30 percent stake to Fauji Fertilizer Company Limited (FFCL) and another 10 percent equity interest in the project to the China Machinery Engineering Company (CMEC), the EPC Contractor of TEL.
Previous performance Over the last four years, HUBC has initiated its transformation to revamp the base business and implement an aggressive growth plan. During FY15, Hub Plant maintained an uninterrupted power supply to the national grid. However, a slightly lower load factor in FY15 came from a decrease in generation, caused by maintenance work on the boilers. The Narowal Plant too witnessed a decrease in load factor in the fiscal year due to the restriction imposed by the National Power Control Center. Its hydel power plant, Laraib had a higher capacity utilization in FY15 due to better hydrology received from Mangla Power Plant and significant reduction in the number of annual maintenance days. The Hub Plant's load factors improved in FY16 as electricity generation during the year was higher due to higher availability and utilization by the power purchaser.
Despite aggressive growth plans, HUBC's earnings over last few years have been dented by operations and maintenance (O&M) activity; however, the power company's decision to outsource O&M services to Hub Power Services in August 2015 proved ameliorating to FY16's earnings.
HUBC in FY17 Even though the consolidated revenues of the firm saw an increase of over 10 percent, year-on-year, 15 percent rise in the operating cost resulted in gross profits to slide by seven percent, year-on-year. Gross margins too came down significantly from 20.29 percent in FY16 to 17.06 percent in FY17.
The decrease in consolidated earnings as reported in the company's Director's Report, is mainly due to higher repair and maintenance expenditure on major overhauling at Hub Plant and 36,000 running hours' major maintenance of six engines at Narowal Plant, lower indexation and exchange rate and higher losses of TEL and CPHGC as these projects are under construction.
Other depressing factors for the bottomline were the higher general and administrative expenses and lower other income. The IPP's finance cost saw a marginal decrease of 1.3 percent, whereas the share of loss from associates went up by 9.8 percent. Resultantly, the company posted a decline of 9.2 percent year-on-year in its profit for FY17.
During the year, Hub Plant supplied generated 6,793 GWh of electricity (FY16: 7,547 GWh) with a load factor of 65 percent (FY16: 72%). Major reason for low load factor were the higher NPCC curtailment during the year. Its Narowal Plant supplied 1,334 GWh of electricity to the national grid compared to 1,162 GWh last year; this plant operated at a load factor of 71 percent compared to 62 percent last year. The Plant is vigorously continuing its efforts for operational excellence to optimize thermal efficiency and availability. Laraib Energy Limited had an availability of 97.87 in FY17 against plan of 93 percent in FY16, reflecting the operational reliability of the complex.
HUBC growth projects and outlook HUBC's growth projects include some 1650MW of additional capacity, and these projects are their advanced stages of construction. These include 2x660MW imported coal based power plants with an integrated coal import jetty at Hub in a joint venture with China Power International Holding (CPIH), a 330MW mine-mouth lignite based power plant at Thar and a strategic investment in Thar Coal Mine as one of the joint venture partners with Engro, Government of Sindh and other investors. During the fiscal year FY17, HUBC announced a final cash dividend of Rs 2.5 per share making total payout for FY17 Rs 7.5 per share, which is lower than previous years primarily because of its investments.
1320 MW Coal Project called China Power Hub Generation Limited (CPHGC) is progressing with COD expected by August 2019. HUBC has also initiated the process for increasing its shareholding to 47.5 percent from 46 percent in the project following the exercise of its Call Option in January 2017 as per the Shareholders Agreement.
Thar Energy Limited (TEL) is setting up a 330MW mine mouth coal based Power Plant in Thar. The EPC contract for the project has been signed with China Machinery and Engineering Corporation (CMEC), and is progressing.
Also, Narowal was demerged as a separate entity from 4QFY17 onwards from HUBC. Amid all these developments, the market is hoping that FY18 would see an improvement in earnings.
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THE HUB POWER COMPANY LIMITED
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Shareholders holding five percent or more voting interest
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DAWOOD HERCULES CORPORATION LIMITED 14.91%
ALLIED BANK LIMITED 9.68%
COMMITTEE OF ADMIN. FAUJI FOUNDATION 8.50%
NATIONAL BANK OF PAKISTAN 4.65%
Total 37.74%
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Source: Company accounts
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HUB POWER COMPANY LIMITED (CONSOLIDATED)
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Rs (mn) FY17 FY16 YoY
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Turn over 101,188 91,595 10.5%
Operating costs 83,929 73,013 15.0%
Gross profit 17,260 18,582 -7.1%
General and administration expenses 1,365 1,252 8.2%
Other income 156 167 -6.4%
Other operating expenses 77 473 -838%
Profit from operations 15,974 17,014 -6.1%
Finance costs 4,081 4.135 -1.3%
Gain on dilution of interest in associates-net 1 62 -98.1%
Share of loss-from associates 186 170 9.8%
Profit alter tax 11,348 12,501 -9.2%
EPS (Rs/share) 924 10.29 -10 2%
Gross margin 17.06% 20.29%
Operating margin 15.79% 18 57%
Net margin 0.35% 0.30%
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Source. PSX
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HUBC-Key Projects at a Glance
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Projects Stake Fuel Type Net Capacity
(MW)
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Hub Plant 100% FO 1200
NEL 100% FO 214
LEL 75% Hydro 84
CPHPGC 46% Coal 1214
TEL 60% Coal 300
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HUB POWER COMPANY LIMITED FINANCIAL RATIOS
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FY13 FY14 FY15 FY16 FY17
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Profitability Ratios
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Gross Profit margin % 9.84 7.25 10.94 17.11 11.86
Net Profit margin % 5.66 4.05 7.49 13.4 10.5
Operating cost to turnover % 90.16 92.75 89.06 82.89 88.14
Fuel cost to turnover % 85.03 86.6 81.97 73.27 89.24
Return on Equity (%) 29.63 20.58 31.44 39.1 35.08
Return on Capital Employed (%) 27.71 19.72 26.76 28.85 26.82
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Liquidity Ratios
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Current Ratio Times 1.18 1.06 1.08 1.03 0.96
Quick/Acid Test Ratio Times 1.05 1.01 1.01 0.97 0.9
Cash to Current Liabilities Times 0.396 0.032 0.006 0.037 0.014
Working capital Rs (mn) 7902 5086 6,296 2,352 -3,697
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Activity/Turnover Ratios
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Inventory Turnover Times 49.67 45.22 39.98 23.75 25.9
Receivables Turnover Times 1.89 3.09 1.72 1.15 1.04
Payables Turnover Times 1.82 3.00 1.86 1.04 1.11
Total Assets Turnover Times 1.67 1.19 1.04 0.64 0.68
Fixed Assets turnover Times 3.82 3.93 3.39 2.36 4.55
Working capital turnover Times 20.99 31.81 20.88 36.75 -21.26
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Investment/Market Ratios
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Earnings Per Share Rs. 8.11 5.66 8.51 10 8.29
Price Earning Ratio Times 7.6 10.28 11 12.01 14.17
Dividend Yield % 12.98 11.18 10.15 9.16 6.39
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Capital Structure Ratios
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Financial Leverage Ratio Times 0.79 0.76 0.71 0.76 0.4
Weighted Average Cost of Debt % 16.31 12.5 11.77 8.74 5.45
Debt to Equity Ratio Ratio 0.44 0.43 0.42 0.43 0.29
Interest Cover Ratio Times 2.43 2.42 3.21 4.77 5.71
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Source: Company Accounts
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