HUBC - diversification paying off

At a time when thermal power plants were under fire for using expensive fuel, Hub Power Company Limited (PSX: HUBC) tapped the opportunity posed by CPEC. The IPP invested on the coal side- the results of which can now be seen in the company’s boosted earnings versus other IPPs. The commencement of China Power Hub Generation Company (associate company) in August 2019 has been a key factor driving up the company’s profitability in FY20 so far.

HUBC posted over 100 percent increase in its consolidate earnings for 9MFY20. While the revenue growth remained tepid due to lower utilization at the base plant at Hub Balochistan as well as the Narowal plant, the profits from the associate company contributed Rs8.96 billion to the company’s bottomline – 47 percent of profit after tax. On the other hand, the standalone financial statement for 9MFY20 show that HUBC’s earnings grew by 30 percent year-on-year.

On the cost side, HUBC’s consolidated operating costs were down by half in 9MFY20 due to lower load factor and associated costs. Back in 1HFY20, the base plant operated at a load factor of only 1 percent due to furnace oil curtailment. Other factors as well like devaluation of the currency and lower repair and maintenance expenses also lifted earnings for 9MFY20.

HUBC’s profits for 9MFY20 were pulled down by one-off loss due to transfer of 3 percent equity shareholding in CPHGC by Hub Power Holding Company and China Power International (Pakistan) Investment Limited (CPIPI) to Government of Balochistan. Besides, 90 percent year-on-year growth in finance cost also restricted the bottomline growth.

HUBC did not announce any dividend. the company has not been declaring dividend due to massive capital expenditure undertaken in coal power generation. Against the Covid-19 backdrop and delay in capacity payments on the cards, payout from the IPPs including HUBC are likely to remain muted.