Hub Power Company Limited

Hub Power Company is the largest Independent Power Producer (IPP) in the country with a combined power generation capacity of over 1600 MW. The company is listed on the Pakistan Stock Exchange with it its Global Depository Receipts (GDR's) also listed on the Luxembourg Stock Exchange.

In general, plant rehabilitation, in-housing O&M function, quarterly dividends, and focus on growth have been key developments at HUBCO in recent times. The IPP owns three power generation facilities including: an oil-fired power station of 1,200 MW in Balochistan (Hub plant), a 214 MW oil-fired power station in Punjab (Narowal plant), and an 84 MW hydro power station through its 74.95 percent controlling interest in Laraib Energy Limited (LEL).

Hub Power Company is looking to expand, and it recently has incorporated wholly owned subsidiaries for its future development plans. Hub Power Holding Limited has been incorporated to invest in the coal based 2x660 MW power project, while Hub Power Services Limited has been incorporated to take over the O&M of the Hub Plant and upcoming coal plant.

FY15 Snapshot

In FY15, the power company took advantage of the China Pak Economic Corridor and established a joint venture with China Power International Holdings to install two 660 MW coal power plans at the existing Hub plant site in Baluchistan. It also undertook an JV in Engro with the objective to increase production from Thar coal mines.

Its operating performance remained sanguine in FY15. The main plant It generated 6,810GWh of electricity compared to 7,087GWh in FY14, which is a load factor of 65 percent compared to 67 percent. The decrease in generation was caused by ongoing maintenance work on the boilers.

Its Narowal Plant 's performance however slipped with generation of 1,418GWh of electricity compared to 1,562GWh in FY14 which is a load factor of 76 percent versus 83 percent in FY14. Lower generation was due to the restriction imposed by the National Power Control Center. The IPP's hydel plant, Laraib generated 489GWh of electricity in FY15 compared to 470GWh in FY14, which is at a load factor of 66 percent compared to 64 percent previously.

Financial Performance FY16 and 1QFY17

Hub Power Company Limited's stock outperformed the benchmark index through most of FY16, partly due to increased operational efficiency and lower operational and maintenance costs of the IPP. HUBC's earnings over the 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 Limited in August 2015 turned the tides.

In FY16, though the firm's topline kept heading south to slide due to lower furnace oil prices, the IPP was able to report over 600 basis point increase in gross margins due to better load factor in the fourth quarter, lower furnace oil prices, and 39 percent year-on-year lower operating costs, and hence higher O&M savings.

Such cost saving along with 32 percent year-on-year fall in finance cost due to lower interest rate environment inflated the bottomline by 17.5 percent year-on-year.

The IPP's financial performance in 1QFY17 have been lukewarm. On a consolidated basis, it topline came down by 11 percent year-on-year, while the bottomline receded slightly (by two percent year-on-year). The company also announced a cash dividend of Rs 1.5 per share for the first quarter of the fiscal year. Lower than estimated earnings came primarily from higher operating costs on Base Plant (Hub) and Narowal Plant, which is likely attributable to a higher expected O&M charges. These costs have been highlighted in the firm's FY16 annual report; its steam turbine's overhaul had been planned for August 2016. The earnings for 1QFY17 were also affected by slightly higher administrative costs.

Outlook

In FY16, increased investor interest was mostly due to the progress being made on the firm's 1320MW coal based project.

However, Hub Power Company Limited has recently notified on the stock exchange the likelihood of the company scaling back on its expansion project from two 660MW power plant to one 660MW, which does not come as a surprise after the government put a ban on imported fuel plants in the wake of a potential power surplus.

Going forward, the IPP will continue to incur O&M costs related to its rehabilitation plans, which will have impact on the profits in the coming years; besides the overhaul of its steam turbine that was scheduled for August 2016, six engines of Narowal plant have been planned in FY17 and three more in FY18 according to the firm's annual accounts.