Global - HUBCO - Jul08

Pakistan Equity Research
Global
Initiating Coverage
July 23, 2008
BUY
The Hub Power Company Ltd Current price (PKR)

Fair Value (PKR)
28
40
Power Up
We initiate coverage on Hub Power Company (HUBCO) with a “BUY” Industry Power Gen.
recommendation, based upon our estimates of its IRR and intrinsic value. The
stock offers an attractive PKR IRR of 23%, and USD IRR of 20%, and is currently Industry view Positive
trading at a discount of 32% from our estimated intrinsic value of PKR 40/share.
Robust & escalating dividend yield Ticker
HUBCO offers relatively low-risk and robust dividend pay-offs with a prospective
KATS HUBC
FY09 dividend yield of 13%; dividends are expected to grow at a 5yr CAGR of
12%. Bloomberg HUBC PK
Hedge against currency devaluation Reuters HPWR.KA
The tariff structure ensures that a foreign investor’s return is hedged for PKR
devaluation against the USD and for US inflation. Local investor will benefit in the
form of higher PKR based returns if the PKR devalues against the USD, while a Market Data
US based investor’s real return stays hedged. Market cap PKR mn 31,891
Low operational risk USD mn 452
The company’s fixed and variable costs and principle repayments are pass-
through, i.e. they are part of the tariff charged to the purchaser. Hubco’s sole Shares outstanding (mn) 1,157
power purchaser is Water and Power Development Authority (WAPDA), whose
credit worthiness is backed by a sovereign guarantee. Free float (%) 65
Narowal to be add value additive

Trading Statistics (52 weeks)
HUBCO is setting up a 225MW power plant in Narowal district at a cost of USD
244mn. We believe this project is value additive, and estimate that the project’s Price range (PKR) 24 - 35
value-addition will be about PKR 0.7/share. Avg daily value (PKR mn) 72
Risks Avg daily vol (mn shares) 2.3
WAPDA’s ability to pay depends on the government’s fiscal position. The burden
of fuel subsidies has recently strained the fiscal position of the government,
Stock Performance
which has affected WAPDA’s ability to pay. However, the government has
sponsored short-term working capital loans for HUBCO from commercial banks, (%) 1M 3M 12M
which are expected to continue in the medium term. With expected phase-out of
subsidies by year end the fiscal position of the government is expected to Absolute (3) (20) (16)
improve, which would enhance WAPDA’s ability to pay. Besides the sovereign risk Relative to mkt 4 11 3
there is the risk of PKR appreciation, which adversely affects the return of a local
investor.
Earnings Data 120
PKR mn FY06 FY07 FY08E FY09E FY10E 110
Net Revenue 27,911 44,131 55,001 51,478 48,683 100
EBITDA 5,726 5,561 6,212 6,782 8,002

90
Net Income 2,768 2,654 2,789 3,560 5,202
80
EPS (PKR) 2.39 2.29 2.41 3.08 4.50
DPS (PKR) 3.10 2.85 2.72 3.49 4.85 70
CFOS (PKR) 2.30 1.87 3.44 4.52 5.95 60
Key ratios (%)

Sep-07
Oct-07
Nov-07
Dec-07
Feb-08
Jul-08
Jul-07
Aug-07
Jan-08
Mar-08
Apr-08
May-08
Jun-08
ROAA 3.07 6.00 5.95 7.67 12.61

HUBC KSE100
ROAE 4.49 8.99 9.66 12.51 18.58
Dividend yield 11.25 10.34 9.87 12.67 17.61
Earnings yield 8.7 8.3 8.7 11.2 16.3
Syed Fawad Basir
P/E (x) 11.5 12.0 11.4 9.0 6.1
fawad.basir@gslpk.com
Source: Company accounts, Global estimates
+92.21.246.9420 to 27
Shabbir M. Malik
shabbir.malik@gslpk.com
+92.21.246.9420 to 27
Global Securities Pakistan Ltd. │ 9th Floor Muhammadi House │ I.I. Chundrigar Road │ Karachi │ Pakistan
www.gslpk.com
The Hub Power Company Ltd
This page has been left blank
Global Securities Pakistan Ltd. 1

Table of Contents
Investment case ........................................................................................ 4

Valuation snapshot .................................................................................. 5
Risk factors ............................................................................................ 6
Structure................................................................................................ 7
Industry overview ................................................................................... 9
Company overview ................................................................................ 13
Narowal project..................................................................................... 13
Financial Statements.............................................................................. 14
Glossary.................................................................................................. 16

This page has been left blank

Investment case
Dividend yield
HUBCO is expected to shine in an unfavorable macro-economic environment,
courtesy of its Power Purchase Agreement (PPA) with WAPDA as per which the
investor receives relatively low-risk payoffs. Dividend yield for FY08 is expected
to be 13% and is projected to grow at a 5yr CAGR of 12%, primarily due to a
scalable trend in its agreed tariff with WAPDA and devaluation of the PKR.
Figure 1: Expected DPS and Dividend Yield FY08-27

PKR/share %
25 100
90
20 80
70
15 60
50
10 40
30
5 20
10
- -
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23
FY24
FY25
FY26
FY27
DPS (LHS) Dividend yield (RHS)
Source: Global Estimates
Enticing IRR
At current price the stock offers an attractive USD IRR of 20% and a PKR IRR of
23%. Our estimated PKR required rate of return, based on CAPM, is 16.7%.
Low operational risk
The company’s variable and fixed costs and loan repayments are pass-through
items, i.e. HUBCO charges WAPDA for them in its tariff. Variable costs include
the cost of fuel used in power generation, while fixed costs include operating and
maintenance cost, interest expense and insurance. HUBCO’s margins are not
vulnerable to volatility in oil prices, since its fuel bill is a pass-through item and
paid for by WAPDA.
Tariff hedged for PKR devaluation and US inflation
The tariff is indexed with the PKR/USD exchange rate and offers a pre-
determined real USD return. Local investor gains in the form of higher PKR
dividends if the PKR devalues against the USD, while a US based investor’s
return is hedged for exchange rate movements and US inflation.
No taxes
HUBCO does not pay any corporate tax, as it enjoys a tax holiday for the
duration of the PPA, expiring in CY27.
New project to be value additive
The company is setting up a new 225MW power project in Narrowal which would
be value additive based on our analysis. The project offers a real USD IRR of
15% and is expected to add PKR 0.70/share to the intrinsic value of HUBCO’s
existing project.

Valuation snapshot
We have used sum of parts valuation where we have estimated the intrinsic
value of HUBCO’s existing plant using the Dividend Discount Valuation technique
and added on the value of the new project in Narrowal by estimating the NPV
using its expected IRR and a hurdle rate. For HUBCO’s current business we have
projected dividends until the expiration of the PPA (CY27), assumed no terminal
value and used the required rate of return derived from the CAPM to discount the
dividends. Narrowal’s NPV is determined using a real USD IRR assumption for
new power projects of 15%, a hurdle rate equal to the required rate of return
and an equity investment of USD 73.3mn.
The required rate of return of 16.7% is estimated using the CAPM, where we
have used a risk free rate of return of 12.5% based on our long-term view of
interest rates, a risk premium of 6% and a Beta of 0.7 based on 2-year historical
systematic risk of the stock.
Sensitivities
Fair value sensitivity to required rate of return
Required rate Price (PKR)

15.0% 45
16.0% 42
17.0% 40
18.0% 37
19.0% 35
Other Sensitivities
1% lower devaluation of PKR: -7% change in Fair value
1% lower devaluation of PKR: -8% change in PKR dividends

Risk factors
WAPDA’s financial position
WAPDA is HUBCO’s sole customer; the payments made by WAPDA besides
compensating for non-fuel costs are used to make payments to Pakistan State
Oil (PSO) for the supply of furnace oil used to run the plant. Due to financial
strains in WAPDA and limited fiscal space of the government, payments to be
made to HUBCO have been delayed and as a result HUBCO has had to borrow
money from banks to maintain fuel supply. These loans are effectively owed by
the government, but are booked on HUBCO’s balance sheet. Principal
repayments and interest expense of these working capital loans are pass through
items and should neither affect the profitability of the company, nor, in our
opinion, its dividend pay-out.
Appreciation in PKR
This is a tangible risk for local investors since HUBCO’s dividends are based on
real USD return, which in PKR terms fluctuate with the exchange rate. The trend
in the economy’s trade deficit however suggests that a PKR appreciation is
unlikely in the near-term.
Key Assumptions
Projections
US inflation: 2.60%
PKR devaluation against the USD: 2.20%
Discount Rate
Risk Free Rate: 12.5%
Market Risk Premium: 6%
Beta: 0.7

Structure
HUBCO’s bond like characteristics
To understand HUBCO’s pay-offs consider a 30 year semi-annual amortizing
bond maturing in FY27. The repayment structure of the bond is such that the
bulk of the principal re-payments are towards the back-end of the loan term. The
bond holder essentially gets a half-yearly interest income and a partial re-
payment of the principal; as the bond nears maturity the principal repayment
increases. Like all bonds the inherent risk of the instrument is lower than equity,
because 1) the payments and their schedule are pre-determined and 2) the
amount borrowed is protected by collateral or a sovereign guarantee. As per the
PPA, HUBCO’s equity holder is entitled to pre-determined dividends composed of
invested capital and a return on capital whose payment is guaranteed by the
government.
Like any bond HUBCO is not risk free. Return on capital invested can vary
depending on variances between actual expenses incurred in operation and
planned expenses agreed upon by HUBCO’s shareholders and WAPDA in the PPA.
In addition PKR based returns may vary depending on the exchange rate of USD
vs. PKR. Although unlikely, the government may back down from its sovereign
guarantee if it is faced with a fiscal crunch.
Tariff composition
As per the PPA, Hub Power’s tariff is composed of Energy Purchase Price (EPP)
and Capacity Purchase Price (CPP).
Figure 2: HUBCO’S Income Statement
EPP: Fuel Cost + Variable Cost

Revenue CPP: Fixed Cost + Project Company Equity+
Principle Repayments +Interest Expense
Operating Costs Fuel Cost+ Variable Cost+ Fixed Cost
Operating Profit PCE + Principle Repayment + Interest Expense
Other Income Interest Income (I)
EBITDA PCE + Principle Repayments + I + Interest Exp
Non Cash Charges Depreciation + Amortization (D)
EBIT PCE + Principle repayment-D + I + Int. Exp.
Financial charges Interest expense
PAT PCE + Principle repayment-D+I
Source: Global analysis

EPP
The EPP incorporates two elements of the cost structure which are fuel cost and
the variable operating and maintaining costs. Fuel cost is linked to the capacity
utilization and the market price of furnace oil. Variable operating and
maintenance costs, within a prescribed limit agreed in the PPA, are pass through
costs.
Figure 3: EPP
PKR mn
50,000 46,935
45,000 42,595
40,000 38,457 37,601

37,025
35,000
30,000
25,000
20,000
15,000
10,000
5,000
-
FY07 FY08 FY09 FY10 FY11
CPP
CPP is composed of a scalable component and a non-scalable component. The
company’s fixed costs excluding depreciation are in the scalable portion of the
CPP. They are scalable because they are indexed for PKR devaluation and US
inflation. The CPP section also includes the Project Company Equity (PCE) which
is the return the investors get on the project as per PPA. PCE is escalated in sync
with US inflation and the Pak rupee devaluation. Interest expense and principal
repayments against outstanding loan make up the non-scalable component of
CPP.
Figure 4: CPP
PKR mn
10,000
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
-
Escalable Non-Escalable
PPA
The agreement with WAPDA determines the principles under which the plant is
operated and the tariff arrangements. Under the agreement WAPDA may instruct
HUBCO to generate and deliver electricity into the Grid up to the available Net
Capacity of the plant. Tariff payments will be made by WAPDA whether or not
the power is dispatched, provided that it is available for dispatch. If HUBCO fails
to meet WAPDA’s generation demands, it will incur penalties payable to WAPDA.
Bonuses are paid by WAPDA for generation in excess of 65% capacity utilization
of the plant.

Industry overview
Power demand
Demand for electricity consumption in Pakistan has been growing at an average
rate of 9.5% over the past four years. The rise in demand for power in recent
years came on the back of higher GDP growth (5 yr CAGR of 7%), increasing
rural electrification, commercialization and industrialization. Pakistan has a total
installed electricity generation capacity of 19,566 MW, which produced more than
93,621 GWh of electricity in FY08. Currently, there is a peak time power shortfall
of 4,000 MW and the government plans to alleviate the deficit by encouraging
private investment in the sector, which would add about 2,200 MW over the next
year.
Figure 5: Demand-Supply FY08-12 Figure 6: Planned additions

MW
25,000
Hydel 3%
20,000 IPP 40%
15,000
10,000
Thermal 57%
5,000
-
Demand Supply Hydel Thermal IPP's
Source: Economic Survey FY08 Source: Economic Survey FY08
Power supply
The current installed capacity is 19,566MW which is theoretically enough to meet
peak load demand. However, due to inadequate fuel supplies thermal plants,
which account for 65% of the country’s total generation capacity, are not able to
generate at optimum utilization level. As a result in May’08 the power deficit
reached a peak of 4,000MW. The government has planned extra efforts in FY09
to ensure adequate fuel supply for power plants so that the utilization and load
factors can improve. Further, in order to meet the growing demand more power
plants are being encouraged to increase capacity and to reduce the power deficit.
The government is actively pursuing new investments in all types of plants, be it
thermal or hydro. It held bidding for setting up six independent power projects to
generate 2,200MW electricity on a fast track basis by Apr09. In addition it has
allocated PKR 76.2bn for investment in the power sector in FY09.
Figure 7: Power Generation Plan Figure 8: Installed Capacity

MW MW
60,000 12,000
50,000 10,000
40,000 8,000
30,000 6,000
20,000 4,000
10,000 2,000
-
-
FY08 FY10 FY15 FY20 FY25 FY30
WAPDA IPP's Nuclear KESC
Nuclear Hydel Coal Renewable Oil Gas FY07 FY08
Source: Economic Survey FY08 Source: Economic Survey FY08

Thermal Power
WAPDA operates the majority of thermal power plants in Pakistan, with over
5,000 MW of installed capacity in its control. The Guddu plant is the largest plant
operated by WAPDA, with a capacity of 1,650 MW. In recent years, growth in
Pakistan’s thermal power generation has come primarily from new Independent
Power Producers (IPPs), some of which have been funded by foreign investors.
The two largest IPP’s in Pakistan are Kot Addu Power Company (1,600MW) and
HUBCO (1,200MW). The government policy is currently focused on setting up
thermal power plants (both oil & gas): 90% of foreign investment in the power
sector is directed towards thermal power. Thermal power plants are relatively
cheap to install and have a short set-up time compared to hydro power units,
which is why the government is favoring them to overcome the current power
crisis. Thermal plants have high operating costs since they rely on expensive fuel
such as furnace oil, coal and natural gas.
Figure 9: Existing Thermal Capacity vs Expected Capacity by Jun’14

MW
10000
9000
8000
7000
6000
5000
4000
3000
2000
1000
0
Existing Capacity Expected Capacity
Source: WAPDA
Hydro Power
Hydro power plants involve huge capital outlays and take longer to set-up
compared to thermal plants. They have, however, one of the lowest operating
costs which translate into cheaper power and lower stress on the trade balance.
The prospects of installation of Hydro projects continue to be marginalized due to
the incessant political disagreement on the setup of such projects.
Figure 10: Installed vs Potential Hydel Capacity

MW
20,000
18,000
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
-
NWFP Punjab AJK Northern Areas
Installed Potential
Source: PPIB
Hydroelectric power represents a third of Pakistan’s power source and has a

potential of approximately 41,722 MW, most of which lies in the North West
Frontier Province, Northern Areas, Azad Jammu and Kashmir and Punjab. WAPDA
controls the country’s major hydroelectric plants, the largest being the Tarbela
plant with an installed capacity of 3,046MW. Additional hydroelectric plants in
operation include Mangla with 1,000MW, Warsak 240MW and Chashma 184MW.
Although Pakistan has plans to develop additional hydroelectric generating
capacity, infrastructure constraints such as access roads in mountainous regions
and resettlement costs of affected populations have stalled the progress. In spite
of constraints Eden Enterprises is going ahead with its Suki Kinari 655MW
hydropower project. Construction is expected to begin in 2009, with the plant
coming online in 2011. The importance of this project is great as it is expected to
provide several hundred MW of additional hydroelectric power capacity to the
national grid. Apart from this the Private Power and Infrastructure Board (PPIB)
is currently reviewing six additional hydropower projects for the Swat River.

Alternative power sources

Pakistan possesses immense potential to harness solar and wind energy. The
Government of Pakistan is now emphasizing on the acquisition of power through
alternate energy resources and is planning to add 500 MW in the next 5 years
through alternate sources. Feasibility studies are also under way for producing of
over 1,000 MW of energy through the use of solid waste and coal. Government
of Pakistan is putting greater emphasis on Renewable Energy and has set a
target of 2,700MW or 10% of the energy mix from renewable energy by 2015.
Wind energy
The potential of power generation through wind should not be underestimated in
spite of having considerable start up cost. Planet Energy Ltd has signed a MoU
with Gold-wind Science and Technology for purchase of wind turbines for its
planned 50MW wind farm with the option of increasing it to 150MW.
Nuclear
Pakistan has a small nuclear power program, with 425 MW capacity, but plans to
increase this substantially. In Pakistan, nuclear power makes a small contribution
to total energy production and requirements, supplying only 2.4% of the
country's electricity. In 2005 an Energy Security Plan was adopted by the
government, calling for a huge increase in generating capacity by 2030. It
includes plans for lifting nuclear capacity by 8,800MW, of which 900MW will be
added by 2015 and a further 1,500MW by 2020.
Figure 11: Nuclear Generation

MWe
350
300
250
200
150
100
50
0
Kanupp Chasnupp-1 Chasnupp-2*
Source: PNRA, *Expected to come online in Feb10

WAPDA
WAPDA is the cornerstone of Pakistan’s power sector. Since its establishment in
1958, the company has implemented a number of major infrastructure projects
for the generation, transmission and distribution of Pakistan’s electricity supply.
Today, it employs 137,000 people, has a customer base of over 10 million, and is
at the center of the restructuring of Pakistan’s power sector. To streamline
operations the state-owned giant has been divided into 14 new companies. An
experienced private sector management has been put in place to enhance
operational efficiencies and improve its financial position.
Figure 12: WAPDA Electricity Generation

GWh
70,000
60,000
50,000
40,000
30,000
20,000
10,000
-
FY07 FY08
Hydro Thermal
Source: Pepco
The new streamlined organization is comprised of nine distribution companies,

four generation companies, and a national transmission and dispatch company
that buys and sells electricity from generators to suppliers. With the company’s
successful restructuring under its belt, the government is now moving forward
with its privatization plans.
NEPRA
NEPRA has been created to introduce transparent and judicious economic
regulation, based on sound commercial principals, to the electric power sector of
Pakistan. NEPRA's main responsibilities are to:
• Issue Licenses for generation, transmission and distribution of electric

power
• Establish and enforce Standards to ensure quality and safety of
operation and supply of electric power to consumers
• Approve investment and power acquisition programs of the utility
companies
• Determine Tariffs for generation, transmission and distribution of
electric power
NEPRA regulates the electric power sector to promote a competitive structure for
the industry and to ensure the coordinated, reliable and adequate supply of
electric power in the future. By law, NEPRA is mandated to ensure that the
interests of the investor and the customer are protected through judicious
decisions based on transparent commercial principals and that the sector moves
towards a competitive environment.

Company overview
The development of the Hub Power Project began when the Government
requested sponsors led by Xenel Industries of Saudi Arabia to present proposals
for a 1,292 MW plant.
In 1991, HUBCO was incorporated in Pakistan as a limited liability company for
the purpose of implementing the project. During the three years that followed, a
series of agreements were negotiated between HUBCO and the Government of
Pakistan and certain of its institutions, the construction consortium and National
Power. It was on the basis of these agreements that long-term finance was
raised without direct guarantees from the Government.
Debt syndication was completed during the last quarter of 1994 and by the end
of the year, the full financing, including equity was in place. This was the single
largest issue of domestic shares at one time. Financial closure was finally
achieved in Jan95.
Figure 13: HUBCO’s Shareholding Pattern Figure14: Planned Additions

State Life
HBL Treasury Hubco
Insurance
3% 21%
3%
NBP Xenel
3% Industries Ltd
Mitsui & 26%
Company
4%
Fauji
Foundation
18%
MCB Bank Ltd

5%
AICL National Power

1% Intl Others
37% 79%
Others Hubco
Source: Company accounts Source: PPIB
Plant details
HUBCO consists of four generating units each rated at 323MW gross output, with
an oil-fired single re-heat boiler, two cylinder condensing steam turbines directly
coupled to a hydrogen cooled generator. The design net available output is
exported to WAPDA's national grid via the power station's 500kv switchyard.
Both the plant configuration and the steam conditions represent conventional
design based on proven technology. HUBCO is one of the most efficient oil fired
thermal plant in Pakistan and can provide 8% of country's electricity demand.
The plant is operated in such a way that it is available at a short notice during
high demand period and can switch to flexible operations during low demand
periods. Hubco holds 21% of the total installed capacity of IPP’s.
Narowal project
The Hub Power Company Limited is setting up a combined cycle power plant
based on reciprocating engines technology with a total project cost of
USD 244.3mn and having an installed capacity of 225MW at Narowal district,
Punjab. The government has approved formal request and the tariff structure
has also been agreed upon with NEPRA. The plant will be powered by 11, 18
cylinder V-configuration four stroke engines which will run on Residual Fuel Oil.
The plant is expected to contribute to the national grid by the end of Mar10.
The project cost will be financed by 30% equity which comes to USD 73.3mn and
70% debt worth USD 171mn. The plant will have the ability to run on High speed
diesel oil as an alternative fuel source. 100% generation from the plant would be
supplied to the National Transmission and Dispatch Company Ltd (NTDC).

Financial Statements
Income Statement
PKR mn FY06 FY07 FY08E FY09E FY10E

Net Sales 27,911 44,131 55,001 51,478 48,683
Operating costs
Fuel Cost 20,238 36,259 46,487 42,100 37,940
0&M cost 1,253 1,688 1,651 1,877 1,982
Insurance 413 369 367 400 400
Gen & Admin 281 253 284 319 359
Sub Total 22,185 38,570 48,789 44,697 40,681
EBITDA 5,726 5,561 6,212 6,782 8,002
Depreciation & Amortization 1,649 1,650 1,653 1,662 1,672
EBIT 4,078 3,911 4,560 5,119 6,330
Financing cost 1,577 1,417 1,889 1,603 1,189
Other income 268 161 118 44 61
EBT 2,768 2,654 2,789 3,560 5,202
Taxation - - - - -
Recurring Net Profit 2,768 2,654 2,789 3,560 5,202
Extraordinary Items - - - - -
Net Profit 2,768 2,654 2,789 3,560 5,202
Balance Sheet

Current Assets
Inventory of fuel oil 1,891 2,564 1,479 1,263 1,138
Trade debts 2,938 7,937 15,000 12,000 8,000
Advances and prepayments 1,401 1,269 873 774 733
Cash and bank balances 3,363 743 350 438 567
Sub Total 9,594 12,513 17,703 14,475 10,438
Non Current assets
PPE 33,319 31,857 30,393 28,948 27,498
Intangibles 5 5 5 6 6
Stores and spares 592 613 691 598 544
Long term deposits 4 6 - - -
Sub Total 33,921 32,481 31,089 29,552 28,049
Total assets 43,515 44,994 48,792 44,026 38,486
Liabilities
Non current
Long term loans 9,250 8,271 7,303 6,329 5,355
Deferred liability-gratuity 15 18 - - -
Sub Total 9,265 8,290 7,303 6,329 5,355
Current liabilities
Current maturity long term loan 979 979 974 974 974
Short term loan - 2,090 6,500 4,000 400
Trade and other payables 2,591 3,938 4,378 3,788 3,448
Interest on long term loans 695 645 943 723 511
Sub Total 4,265 7,652 12,796 9,485 5,333
Total Liabilities 13,530 15,941 20,098 15,814 10,689
Share Capital and reserve
Issued subscribed and paid-up 11,572 11,572 11,572 11,572 11,572
Un-appropriated profit 18,414 17,481 17,122 16,641 16,226
Total equity 29,985 29,052 28,694 28,212 27,797
Total equity and liabilities 43,515 44,994 48,792 44,026 38,486

Cash Flow Statement

PAT 2,768 2,654 2,789 3,560 5,202
Depreciation & Amortization 1,659 1,663 1,653 1,662 1,672
Change in current assets (1,310) (5,539) (5,582) 3,315 4,166
Change in current liabilities (455) 3,390 5,125 (3,311) (4,152)
Cash from operations 2,663 2,168 3,985 5,227 6,889
CAPEX (44) (199) (190) (218) (223)

Stores & spares (30) (20) (78) 93 54
Change in long term deposits 158 (2) 6 - -
Cash from investing 84 (221) (261) (125) (169)
Long term borrowing (979) (979) (968) (974) (974)

Dividends paid (4,443) (3,589) (3,148) (4,042) (5,617)
Cash from financing (5,422) (4,568) (4,116) (5,015) (6,590)
Change in Cash (2,675) (2,620) (392) 87 129

Beg Cash 6,038 3,363 743 350 438
End Cash 3,363 743 350 438 567
Key ratios
FY06 FY07 FY08E FY09E FY10E

Margins (%)
EBITDA margin 20.5 12.6 11.3 13.2 16.4
Profitability (%)
ROAA 3.07 6.00 5.95 7.67 12.61
ROAE 4.49 8.99 9.66 12.51 18.58
Leverage (x)
Debt to equity 34.11 39.03 51.50 40.06 24.21
Valuation
Dividend yield (%) 11.25 10.34 9.87 12.67 17.61
Dividend payout (%) 130 124 113 114 108
Earnings yield (%) 8.7 8.3 8.7 11.2 16.3
P/E (x) 11.5 12.0 11.4 9.0 6.1
BVS (x) 2.59 2.51 2.48 2.44 2.40
P/B (x) 10.6 11.0 11.1 11.3 11.5
EV/EBITDA (x) 8.4 8.6 7.7 7.1 6.0

Glossary
HUBCO: The Hub Power Company Ltd

WAPDA: Water and Power Development Authority
NEPRA: National Electric Power Regulatory Authority
PEPCO: Pakistan Electric Power Company
PPIB: Private Power and Infrastructure Board
PNRA: Pakistan Nuclear Regulatory Authority
PPA: Power Purchase Agreement
EPP: Energy Purchase Price
CPP: Capacity Purchase Price
IPP: Independent Power Producers
MW: Mega-Watts
GWh: Giga watt hours

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Global - HUBCO - Jul08

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Pakistan Equity Research

The Hub Power Company Ltd Current price (PKR)

Narowal to be add value additive

PKR mn FY06 FY07 FY08E FY09E FY10E 110

Net Revenue 27,911 44,131 55,001 51,478 48,683 100

EBITDA 5,726 5,561 6,212 6,782 8,002

CFOS (PKR) 2.30 1.87 3.44 4.52 5.95 60

Key ratios (%)

ROAA 3.07 6.00 5.95 7.67 12.61

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Investment case ........................................................................................ 4

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Figure 1: Expected DPS and Dividend Yield FY08-27

Source: Global Estimates

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Required rate Price (PKR)

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Figure 2: HUBCO’S Income Statement

EPP: Fuel Cost + Variable Cost

Operating Costs Fuel Cost+ Variable Cost+ Fixed Cost

Operating Profit PCE + Principle Repayment + Interest Expense

Other Income Interest Income (I)

EBITDA PCE + Principle Repayments + I + Interest Exp

Non Cash Charges Depreciation + Amortization (D)

EBIT PCE + Principle repayment-D + I + Int. Exp.

Financial charges Interest expense

PAT PCE + Principle repayment-D+I

Source: Global analysis

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40,000 38,457 37,601

Source: Global analysis

Source: Global analysis

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Figure 5: Demand-Supply FY08-12 Figure 6: Planned additions

20,000 IPP 40%

Source: Economic Survey FY08 Source: Economic Survey FY08

Figure 7: Power Generation Plan Figure 8: Installed Capacity

Source: Economic Survey FY08 Source: Economic Survey FY08

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Figure 9: Existing Thermal Capacity vs Expected Capacity by Jun’14

Figure 10: Installed vs Potential Hydel Capacity

Hydroelectric power represents a third of Pakistan’s power source and has a

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Alternative power sources

Figure 11: Nuclear Generation

Source: PNRA, *Expected to come online in Feb10

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Figure 12: WAPDA Electricity Generation

The new streamlined organization is comprised of nine distribution companies,

• Issue Licenses for generation, transmission and distribution of electric

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Figure 13: HUBCO’s Shareholding Pattern Figure14: Planned Additions

MCB Bank Ltd

AICL National Power

Source: Company accounts Source: PPIB

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PKR mn FY06 FY07 FY08E FY09E FY10E

PKR mn FY06 FY07 FY08E FY09E FY10E

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