Pakistan Energy: HUBCO and KAPCO Outlook

Pakistan’s leading brokerage house BMA Capital has revised its FY13E and FY14E earnings estimates by 7% and 5% to Rs8.65/share and Rs8.97/share respectively for Hub Power Company (HUBCO) after taking into consideration higher than expected 9MFY13 financial results, higher penal income on escalating Narowal’s receivables (Rs19 billion) and declining finance cost.

Non-availability of Narowal during March and April this year for generation has entitled it to Liquidated damages to the tune of Rs838 million (included in the receivables). The Company has filed a petition in the Supreme Court that has awarded a stay on any such damages through an interim order for now.

BMA has also increased its FY13E and FY14E earnings estimates for Kot Addu Power (KAPCO) by 11% and 10% to Rs8.7/share and Rs9.1/share respectively to account for lower finance cost on account of frequent cash injections.

The plans to resolve circular debt issue in one go seem good on paper. However the implementation of the same (tariff pass-on, change in energy mix etc) seems a tedious task given the limited fiscal space.

Therefore, BMA maintain its FY13E dividend assumption for HUBCO and KAPCO at Rs7.0/share and Rs7.5/share respectively.

Consequently, the target prices remain unchanged at Rs56/share and Rs58/share for HUBCO and KAPCO respectively.