By: Fortune Securities Limited
Hub Power Company Limited (HUBC) posted consolidated FY15 earnings of PKR 11.07bn (EPS: PKR 9.57) against PKR 7.49bn (EPS: PKR 6.47), up by 48% YoY. The increase was primarily on the back of exponential earnings from Laraib which contributed PKR 2.74bn (EPS impact: PKR 2.37), better earnings from Narrowal and absence of major overhauling cost of the base plant.
We have rolled forward our valuation to June’16 and increase our target price to PKR 125/share post incorporation of 1) lowering cost of equity 2) incorporating O&M savings from hub power services 3) lower interest rates 4) Changes in penal income of base plant. Our new target price implies an upside of 22.5% from current levels. The stock provides PKR IRR of 12.4% and a FY16/FY17 dividend yield of 9.3%/11.3% respectively. Moreover, the aforementioned dividend yield is 280bps/480bps higher than the 1 year T‐bill.
We now expect the company to post EPS of PKR 10.45 and PKR 12.48 in FY15 and FY16 respectively mainly on account of higher earnings from the base plant. Similarly we expect the company to pay DPS of PKR 9.5/share and PKR 11.6/share.