Against the backdrop of shift in the fuel for power generation from FO to coal and LNG, HUBC ventured into the coal business and established wholly owned subsidiaries to launch new initiatives. HUBC owns 47.5 percent shares of newly commissioned 1320MW imported coal based China Power Hub Generation Company (Private) Limited (CPHGC) at Hub. The company is the only power producer in Pakistan with four projects listed in the China Pakistan Economic Corridor (CPEC) including CPHGC, Sindh Engro Coal Mining Company (SECMC) and the upcoming Thar Energy Limited (TEL) and ThalNova Power Thar (Pvt.) Ltd. (TNPTL) at Thar Block II. The power generation capacity oh HUBC will enhance to over 3580MW after completion of these power projects. HUBC's share ownership has changed hands several times. Dawood Hercules was a major shareholder of HUBC since 2012 when the IPP's initial sponsors Xenel International and National Power International exited from their shareholdings and Dawood Hercules Corporation and its affiliates bought most of this given up shareholding. Then in 2018, Mega Conglomerate acquired a substantial shareholding in Hub Power Company from Dawood Hercules and Cyan Limited to become the largest shareholder of the company.

According to company's website, Mega Conglomerate is a diversified conglomerate with business holdings including the country's largest container terminal, third largest dairy producer, top tier cement manufacturing company, vertically integrated shipping company and a progressive real-estate developer. By the end of FY19, Mega Conglomerate owned approximately 20 percent shareholding in HUBC according to annual accounts. The breakup of the shareholding is shown in the illustration.

In FY16, the Hub plant's load factors improved as electricity generation during the year was higher due to higher availability and utilisation by the power purchaser. Growth plans and revamping activity in the last year or so affected earning that improved a bit in FY16 when the power company decided to outsource O&M services to Hub Power Services. HUBC's posted slight improvement in earnings for FY18 despite a slight dip in revenues. The consolidated earnings grew by three percent year-on-year in FY18. The modest growth in earnings was driven by lower repair and maintenance expenditure at Hub and Narowal Plants. However, these were partially offset by lower profits of Laraib, higher financing costs and administrative expenses. In FY18, HUBC's base plant at Hub witnessed a drop in load factors from 65 percent to 49.5 percent due to lower electricity demand from the power purchaser. The Narowal plant also witnessed a decrease in load factors from 71 percent to 64 percent in FY18, which was due to the overhaul of three engines and seven alternators at Narowal plant.

FY9 Financial performance During FY19, the country's power generation from furnace oil declined by 60 percent year-on-year, where its share in total power generation was only 7 percent in FY19 versus19 percent in FY18. As a result, IPPs that run on fuel oil witnessed a further decline in the load factors. HUBC's load factors for its base plant plunged from 49 percent to just at 7.87 percent due to no generation on FO.

Lower generation resulted in lower operating costs and hence HUBC saw an 18 percent year-on-year improvement in its gross profits, and hence gross margins doubled due to lower base/denominator. However, the company's bottom-line posted a flattish growth of only 2 percent year-on-year, and apart from slow growth in revenues, the restriction in earnings came from higher finance cost due to higher interest rates and higher capital expenditure largely coming from coal investments. This was also the reason why it has been skipping dividend announcements. Moreover, the cash it received from the first Energy Suck was used to pay off PSO's payables. The company's consolidated earnings growth was also assisted by the share of profits from China Power Hub Generation Company that commissioned the 2x660MW coal power plants in August. HUBC's consolidated earnings were impacted by twice the increase in finance cost due to the increase in financing the capex. It also took management control by taking 38.3 percent of ThalNova, which is a project identical to TharEnergy. This not only led to cost optimisation, but also creates an opportunity for HUBC to expand revenue base with several inter-aligned services on both these coal projects in Thar. HUBC's lignite based 330MW Thar Energy Limited Project in Thar Block II has completed 37 percent of construction and is targeting to achieve COD by the end of March 2021.

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HUBC - Key Projects at a Glance
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                                       Net Capacity
Projects        Stake     Fuel Type            (MW)
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Hub Plant       100%             FO            1292
NEL             100%             FO             225
LEL              75%          Hydro              84
CPHPGC           46%           Coal           2x660
TEL (SECMC)      60%           Coal           1x300
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Source: Annual Accounts

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The Hub Power Company Limited
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Shareholding Pattern as at June 30, 2019    percentage
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Individuals
Local                                           14.28%
Foreign                                          0.13%
Joint Stock Companies                            3.02%
Financial Institutions                          23.99%
Investment Companies                             1.71%
Insurance Companies                              6.87%
Associated Companies                            20.30%
Directors 9                                      0.16%
Executives                                       0.02%
NIT & ICP                                        0.41%
Modaraba/Mutual Fund & Leasing Companies        13.52%
Others-Government of Balochistan                 0.03%
Others-GDR Depository                            0.78%
Others-Charitable Trusts                         9.69%
Others-Cooperative Societies                     0.10%
Others-Provident/Pension/Gratuity Fund etc       4.99%
MEGA CONGLOMERATE (PVT.) LIMITED                 19.5%
ALLIED BANK LIMITED                               9.7%
COMMITTEE OF ADMIN. FAUJI FOUNDATION              8.5%
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Source: Company Accounts

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Hub Power Company Limited (Consolidated)
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Rs(mn)                                    1QFY20    1QFY19     YoY
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Turnover                                  14,081    17,989    -22%
Operating costs                            6,590    13,151    -50%
Gross profit                               7,491     4,838     55%
General and administration expenses          449       314     43%
Other income                                  68        51     34%
Other operating expenses                      23         1   1986%
Profit from operations                     7,088     4,574     55%
Finance costs                              3,059     1,322    131%
Share of profit/(loss) from associates     1,873      (61)
Profit for the period                      5,823     3,124     86%
EPS (Rs/share)                              4.29      2.47     74%
Owners of holding company                  5,568     2,960     88%
Non controlling interest                     255       164     56%
                                           5,823     3,124     86%
Gross margin                               53.2%     26.9%
Net margin                                 41.4%     17.4%
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Source: PSX

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