Analyst Briefing: HUBC to perform O&M services for other companies for growth

August 28, 2020 (MLN): Hub Power Company Limited (HUBC) held its analyst briefing session yesterday to discuss the financial performance of the company and the progress of ongoing expansion projects and key developments.

To recall, HUBC reported a more than two-fold rise in net profits to Rs 26 billion for the FY20 against net profits of Rs 11.93 billion of the corresponding period last year. The substantial increase in earnings was due to the recognition of share of profit from China Power Hub Generation Company (CPHGC) and PKR depreciation.

According to a report by Intermarket Securities, the management explained that a high tax expense of Rs 3.944 billion during FY20 was due to a deferred taxation charge on the share of profits from CPHGC.

Under the 2015 Power Policy, the withholding tax rate is applicable at 25% for power plants. This affects dividends from all upcoming expansion projects being pursued by HUBC –CPHGCL, TEL, and ThalNova.

For now, however, it is a non-cash expense, the actual tax will be paid when CPGHC will pay a dividend. HUBC management apprised that it is presently contesting this decision with NEPRA, given that this undermines the returns of the investors in new power plants under 2015 PP, Intermarket securities research highlighted.

As per the research of Arif Habib Limited, the management expects that the contribution from Hub Power Services is expected to grow as the company is also planning to perform the O&M services for other companies other than Hub plants.

EPC contractor of TEL and ThalNova has issued a notice for force majeure due to COVID-19. Following that TEL and ThalNova have also issued the notice for force majeure, the research further added.

Speaking of MoU with the government, according to the management, resumption of dividends from CPHGC and HUBC is contingent on the recovery of overdue receivables from the government.

The management expects significant progress to be made in the coming months, where the recently signed MoUs will pass through the Cabinet and a payment schedule will be chalked out for the affected IPPs (through mutual discussions). It is pertinent to mention that the MoU will expire in six months.

As per HUBC’s management, such a schedule will be an integral part of the agreement, in order to be implemented, Intermarket research added.

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