FY20 has primarily been about milking its coal power investments; Hub Power Company Limited (PSX: HUBC) tapping into coal power generation is an example of diversification paying off. At a time when thermal power generation has been dwindling in the country due to depleting natural gas and curbs on furnace oil consumption, HUBC’s associated company - China Power Hub Generation Company commenced generation in August 2019.
The company posted consolidated earnings growth of over 2.2 times for FY20 in its announcement on the stock exchange yesterday despite a17 percent year-on-year decline in the turnover. This was because around 50 percent of the growth in the bottomline was brought by the earnings from the 1320MW coal fired power plant, while the company’s base plant at Hub continued to face falling load factors. Electricity dispatches were zero from the furnace-oil based plant at Hub in the last quarter of FY20 (4QFY20) where electricity consumption remained exceptionally low due to lockdown in the country as well as availability of relative electricity on coal and hydel. Another factor that fueled earnings growth was PKR depreciation that stood at around 24 percent in FY20.
However, what restrained the growth in earnings in FY20 for HUBC was the 61 percent higher finance cost; higher effective tax rate for FY20 versus FY19, which was due to the recognition of deferred tax on share of profit from CPHGC; and one-off loss due to transfer of 3 percent equity shareholding in CPHGC by Hub Power Holding Company and China Power International (Pakistan) Investment Limited (CPIPI) to Government of Balochistan.
HUBC did not announce any dividend for a second year due to massive capital expenditure undertaken in coal power generation and the circular debt situation. And amid the uncertainties over termination of contracts of the IPPs as a result of the recent agreement between IPPs and the government, what holds promising for HUBC is also its coal investment as the company might be converting the furnace oil plants to coal or RLNG ones.
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