Higher Dollar Indexation, New Coal Plants increasing HUB Power Profitability: Outlook positive

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Higher Dollar Indexation, New Coal Plants increasing HUB Power Profitability: Outlook positive

  • HUB Power management optimist about timely Operationalization of Thal Nova and Thar Energy Ltd projects
  • Management expects that its Vision 2025 would keep a balance between growth and value creation for shareholders

Hub Power Company (HUBC) recently announced its September-2019 Financial result where its profitability reached PKR 5.8 billion (EPS. 4.3), marking an increase of 88%.

During the quarter, Dollar indexation increased by an average 36% YoY leading to increased revenue for the company. However, an increase in Kibor along with increased long term debt and short term borrowing increased finance cost of the company by 131%.

Hub Power was able to achieve higher profitability due to achievement of Commercial Operation Date (COD) of  Sindh Engro Coal Mining Company (SECMC) and China Power Hub Generation Company Limited (CPHGC) along with higher dollar indexation.

China Power Hub Generation Company Limited is a 1320MW imported coal-fired power plant of Ultra supercritical technology, located at Hub in Balochistan. The project is built at an estimated cost of US$ 1.995 billion with Debt to Equity of 75:25. The said project has an IRR of 17%.

The other project of Hub Power, Sindh Engro Coal Mining Company, is a 3.8 Million Tons Per Annum coal mine located at Thar. Second phase of expansion is going on where its capacity is expected to be increased to 7.6MTPA. The project is envisaged to supply coal to Thar Energy and ThalNova Coal Projects.

Recent Updates on Hub power and its projects

HUBC recently conducted analyst briefing where we were invited. As per the Management Brief, HUBC has injected around US$370 million for its expansion projects out of the total projected amount of US$402mn. HUBC has to further inject another US$16 million and US$25 million in Thal Nova and Thar Energy Ltd respectively in next one year.

Lower Load Factor on its plants

Hub power Furnance Oil base plant supplied only 32 GWh of electricity, which is 98% lower on a YoY basis. It ran at utilization level of only 1%. Furthermore, Hub Narowal plant dispatches were also lower by 37% to 197 GWh. The decline in dispatched from Furnance Oil based plants is due to the inclusion of cheaper fuel-based power plants into the Country’s Power generation system amid low demand growth, technical faults in the plants due to changing weather and sustainability issues of voltages.

The load factor on Newly inducted Coal-based Power Plants were also on the low due to system constraints and unsustainability of the voltage. However, as per management, Coal plants are now operating at 80% load factor.  

HUBCO sceptic about an early resolution of Circular Debt Issue

Delay in the issuance of Energy Sukuk-II by the government has resulted in the rise in circular debt. However, some hopes have risen for issuance of Energy Sukuk after the first review of IMF  remained successful.  Management remains optimistic that with the issuance of Pakistan Energy Sukuk-II, A major portion of the raised amount would go to IPPs against overdue Capacity Payments. In the previous issue of Pakistan Energy Sukuk, a large amount was diverted to PSO for building the strategic reserves, ensuring fuel supply.

HUBCO Management also believes that Circular Debt Settlement will take 2-3 years, in contrast to the government’s claim to settle it by December 2020. 

Company’s Coal Power Plants (China Power Hub Generation Co) is also facing the issue of delayed payments from WAPDA/NTDC as its receivables has increased to PKR 3billion.  

Outlook of Hub Power Company

The outlook remains positive as the company has started harvesting its Expansion Projects. HUBC is expecting to receive dividends from China Power Hub Generation Co from June-2021 onwards. HUBC’s base plant which is based on Furnance Oil has its Tariff expiring in 2027, after which Company expect to convert it to Coal Based plant. 

HUBC also expects to achieve Commerical Operationalization of Thar Energy Ltd and Thal Nova by June-2021 and December-2021 respectively. HUBC’s long term outlook remains positive.

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