HUBCO FY09 Review

Outshine performance in FY09 -- NPAT and EPS increased by 45%
Hubco disclosed its FY09 performance on August 12, 2009. The company made an outshine performance in FYO9 by increasing its NPAT with 45%YoY to PKR 3.78 Billion compare to PKR 2.6 Billion last year, the EPS of the company also increased by 45%YoY to PKR 3.27 per share. The company did better than its expectations due to the increase in PKR-USD Parity over the last 18 months as the company’s tariff is benchmarked in USD Index. The PKR-USD Parity also resulted in terms of increase in ROE of the company by 20%YoY in FY09 to 13% from 9% from the same period last year.
Circular Debt..! Still a vicious circle
The company still had a dilemma to get rid of the Circular Debt issue. This year WAPDA repositioned its dues on Hubco at the level of PKR 43 Billion and of which PKR 38 Billion was overdue in June 2009. Therefore, this situation forced Hubco to withhold payment of PKR 37 Billion to PSO, a major oil supplier to the company. The company had a strong believes that they will likely to settle the circular debt issue for ever by the end of August 2009. To continue its business cycle the company raised its Financial Expenses in the year by 7% to PKR 2 Billion under the head of short term borrowings. The company also raised a long-term loan of PKR 5 Billion for Narowal project, which was partly used to pay off short-term borrowings.
Higher Dividend than EPS exhibits company’s confidence against ReceivablesThe company made 56%YoY increase to PKR 3.35 dividend per share for the year, including the additional amount of PKR 2.0 cash dividend per share for 4QFY09 which basically is 102% against 78% payout last year. I believe that this dividend disbursement for FY09 is against the forever circular debt settlement by the end of August 2009 due to the IMF pressure on GoP.
Outlook – Driving towards further ExpansionI have optimistic attitude for HUBCO to buy. HUBCO’s 220MWs Narowal oil-fired power project successfully achieved its financial closing in March 2009 and as per companies’ expectations it will be coming online by March 31, 2010. While, hydro project i.e. Laraib Energy of 84MW is expected to be completed by September 2009. The company also signed a Power Purchase Agreement (PPA) for 25 years on November 20, 2008, with WAPDA and the estimated total project cost is USD 285 Million with a debt to equity ratio of 70:30. The entire debt has been funded locally. On the other hand, the PPA of Laraib Power plant has been initiated and the revised tariff has been approved by ECC at PKR 6.84/KWH. Hubco has 75% equity interest in this project. The company is financing the project injection through local banks and International financial institutions. Furthermore, the company also stated that O&M agreement with International Power Global Development has been renewed for further 12 years.