HUBC – benefitting from diversification

The diversification efforts are bearing fruit for Hub Power Company Limited (PSX: HUBC) at the right time. The oldest and largest IPP’s investment in coal is adding to the income stream at a time when the power companies are facing low utilization levels of their base plants due to displacement of furnace oil from the power sector.

This can be seen in HUBC’s recent financial performance as its consolidated earnings growth of over a 100 percent year-on-year in 1HFY20 and came particularly from share of profit from China Power Hub Generation Company (associate company) that started commercial operations in 1QFY20 (August 2019) along with other factors as well like devaluation of the currency and lower repair and maintenance expenses.

On the other hand, HUBC’s base plant at Hub Balochistan operated at a load factor of only 1 percent generating 34GWh of power in 1HFY20 versus 504GWh in 1HFY19 as furnace oil continues to be curtailed in the power sector. Similarly, its Narowal Plant also operated at a lower load factor The results of these can be seen in the company’s declining revenues.

HUBC’s profits for 1HFY20 were affected by one-off loss on the shares to be transferred to Government of Balochistan, which is according to the understanding that Hub Power Holding Company and China Power International (Pakistan) Investment Limited (CPIPI) had to submit 3 percent equity shareholding in CPHGC (1.5 percent each). Besides, over twice increase in finance cost also restricted the bottomline growth for HUBC in 1HFY20. And circular debt and rising receivables have been inhibiting the company from declaring dividends.

However, the company’s future prospects are bright due to its coal investments. Its subsidiary, Thar Energy Limited (TEL) has reached financial close and its expected COD is the 2nd quarter of 2021. Its ThalNova Project’s financial close is expected in March 2020, with COD expected by the end of 2021.