HUB POWER COMPANY LIMITED (HUBCO)

HAMADULLAH ABRO
Research Analyst
, PAGE
Apr 07 - 13, 2008

The Hub Power Company Limited (the "Company") was incorporated in Pakistan on August 1, 1991 as a public limited company under the Companies Ordinance, 1984 (the "Ordinance"). HUCO is a listed company with the Karachi, Lahore and Islamabad Stock Exchanges and its Global Depository Receipts (GDRs) were also listed on the Luxemburg Stock Exchange and have over seventeen thousand (17,000) Pakistani and International shareholders.

The principal activity of the Company is to own, operate and maintain an oil-fired power-station with four generating units having an installed capacity of 1,200 MW in Tehsil Hub, District Lasbela, Balochistan. Under a power purchase agreement, WAPDA purchases the power generated by HUBCO.

It is the first and largest power station to be financed by the private sector in Southern Asia and one of the largest private power projects in the newly industrialized world. It is first project to be successfully co-financed by several governments, the World Bank as well as international private sector lenders and investors, with the objective to meet growing demand for energy.

Its assets are worth Rs.50.9bn with paid up capital of Rs11.6bn. Its total outstanding shares are 1.15bn where individual holdings amount to 10.83%, joint Stock Companies 44.62%, financial institutions 27% and rest by others of the total. Market Capitalization stands at Rs. 37.1bn As on 2April 08, Assets increased by 5.8bn in 1H-FY08 showing a growth of 13.10% in 6 months, posted net profit Rs 13.4bn increased by 7.4% in 1H-FY08 in the same period last year, which translated into EPS of Rs 1.16 posted growth of 7.41% over same period last year

During the period under consideration the plant operated at an average load factor of 62% and an average complex availability (ACA) of 78%.

PLANT CAPACITY AND PRODUCTION

 

2007

2006

Theoretical Maximum Output

10,512 GWh

10,512 GWh

Total Output

7,214 GWh

3,930 GWh

Load Factor (Base Case 64.6%)

68.63%

37.38%


FINANCIAL PERFORMANCE

AMT IN '000'

1H-08

1H-07

CHANGE%

Turnover

26786384

19726503

35.79

Operating Costs

-24421774

-17743868

37.64

Gross Profit

2364610

1982635

19.27

Other Income

31872

108235

(70.55)

General and admin expenses

-138004

-131973

4.57

Financial Charges

-918649

-710610

29.28

Net Profit

1339829

1248287

7.33

EPS-Rs

1.16

1.08

7.41

Total sales stood at Rs 26.8 billion, up from Rs 19.7 billion in the last year while operating cost (cost of sales) totaled at Rs 24.4 billion from over Rs 17.7 billion in the last year due to higher demand for electricity. The company posted 7.33% percent growth in its net profit during the year to Rs 1.34 billion over Rs 1.2 billion in the last year, which translates into EPS of Rs 1.16 in 1H-FY08 against Rs 1.08 in the same period last year. Profit has shown a growth because of higher electricity generation in the calendar year ending December2007 resulting in a generation bonus under the Power Purchase Agreement (PPA).

Liquidity ratio

1H-08

1H-07

Current Ratio

1.27

2.01

Quick Ratio

1.11

1.30

Hubco's trade debts increased due to which the current liability portion increased significantly in 1H-FY08 against same period last year, which is evident from current ratio which 1.27 in 1H-FY08 against 2 in same period last year. Consequently company has to resort short term financing caused the current liabilities to rise substantially thus causing both current and quick ratios of Hubco's to decline in 1H-FY08.

PROFITABILITY RATIOS

1H-08

1H-07

Gross Profit Margin %

8.83

10.05

Return on Assets %

4.44

4.61

ROE %

2.63

4.29

Gross profit margin showing negative trend in 1H-FY08 against 1H-FY07 due to increasing operating cost which has grown more than the sales turnover. Operating cost grew at 38% where as sales grew at 36% in 1H-FY08.

ROA and ROE have declined in the 1H-FY08 against in the same period last year and the decline in their trends can be attributed to the decrease in other income which showed a negative growth of 70% in 1H-FY08 and rising financial charges due rising trade debt which has showed a growth of 30% in period under consideration.

DEBT MANAGEMENT RATIOS

1H-08

1H-07

Total Debt to Total Assets

0.44

0.32

Total Debt to Total Equity

0.77

0.46

Long term Debt to Equity

0.27

0.30

TIE

2.4

2.7

Company's total debt to total assets and total debt to total equity ratios which stood at 44% and 77% respectively exhibiting rising trend in 1H-FY08 against same period last year in which ratios were 32% and 46% respectively. Rising trend is attributed to the increase in current liabilities because of delay in payments from WAPDA, which can be evident from long term debt to equity ratio which has declined to 27% in 1H-FY08 from 30% in the same period last year which shows company is lowering its reliance on debt for financing. Company's interest paying ability has decreased due to rising financial charges.

FUTURE PLANS AND OUTLOOK

The Company is pursuing opportunities for expansion in the energy sector. The federal Government has approved Hubco's fast track proposal for a residual Fuel Oil Project of 225MW with an anticipated commercial operation date March 2010 which will contribute towards the economic development of the country.

FBR is also considering granting tax exemption on expansion of power projects by IPPs that are currently operating in the country to contain our mounting energy deficit which, according to one estimate, stood at 1300 MW daily, which will have positive impact on company's financial position.