POWER SECTOR WITNESSED ROBUST EARNING GROWTH

In our today's morning report we would discuss the performance of the Power sector during the 9MFY15. We have taken four companies of the sector in contribution which includes; The Hub Power Company Limited, Kot Addu Power Company Limited. (KAPCO), Nishat Power Limited (NPL) and Nishat Chunian Power Limited (NCPL).

Earning Surge by 29%:

Profitability of the power sector remained noteworthy during the 9MFY15 as cumulative earnings swell by 29% YoY. In the 9MFY15, power sector earned a profit after taxation (PAT) of Rs 18.62 billion as against a PAT of Rs 14.45 billion. Amazing performance mainly driven by lower maintenance cost, efficiency gains, higher production bonus on account of better load factor and rise in other income. However in 3QFY15, profitability decline by 10% QoQ to Rs 5.51 billion versus Rs 6.13 billion in 2QFY15 due to higher maintenance cost.

Lower FO Prices Drag Top-line:  

Net sales of the sector remained lower as it fall by 12% YoY to Rs 215.08 billion versus Rs 245.44 billion in 9MFY14 mainly due to sharp drop in furnace oil prices and lower load factor on account of circular debt. Cost of sales also declined sharply by 16% to Rs 185.46 billion against Rs 221.58 billion in 9MFY14 which translated into robust gross profit as it surge by 24% YoY to Rs 29.62 billion versus Rs 23.86 billion in 9MFY14.

Other Income Supported Well:

Mainly on back of 85% YoY rise in the other income segment of KAPCO due to higher panel income, the other income of the segment managed to post a significant rise of 78% YoY to Rs 5.30 billion in 9MFY15 as against other income of Rs 2.98 billion in 9MFY14.

KAPCO Remain Top Performer:  

Kot Adu Power Company was the best performer among other companies in the sector as its profitability increased by 37% YoY in 9MFY15 due to higher capacity purchase payment, lower maintenance cost, and hefty surge in other income. KAPCO earned a PAT of Rs 7.12 billion (EPS: Rs 8.09) as compared to a PAT of Rs 5.21 billion (EPS: Rs 5.92) in 9MFY14. KAPCO was followed by Hub Power Company with 31% YoY growth in its earnings.

Recommendations:

We have a neutral stance on the sector with our Dec'15 target price of HUBC and KAPCO is Rs 103/share and Rs 92/share respectively.

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KSE-100 INDEX WEEKLY

Record biding of US$1.6bn of HBL offering and recovery in international oil prices helped market to remain bullish in current week. Market has observed an increase of almost 3,400 points since 30^th march after seeing a decline of 6,000 point. Other news triggering market were delay in announcement of gas price hike, new discoveries by OGDC in Mardankhel, increasing Forex reserves to US$16.11bn by SBP, higher dispatches & result posting from cements, announcement of new power policy by government and fixation of 17 per cent GST on LNG by ECC.

The benchmark KSE-100 index was up by 936.97 points to close at 32,350.93 points. KSE All Share Index increased by 623.18 points to end at 22,893.21, KSE 30-Index improved by 628.82 points to conclude at 20,515.01.

The ready market average volume reduced by 5.30 per cent to 240.37 million shares compared to 253.82 million shares traded on last week. The market capitalization of KSE enhanced by Rs 181.76 billion to Rs 7.116 trillion against Rs 6.934 trillion observed last week. Pakistan Elektron Limited remained overall volume leader during the week at 100.74 million shares, up by Rs 7.16 to close at Rs 57.94. Second on the volume leader was, Maple Leaf Cement increased by Rs 5.08 to close at Rs 60.68 by trading nearly 99.21 million shares. Jahangir Siddiqui Company remained as the third volume leader of the week by trading well over 91.33 million shares got better by Rs 3.85 to close at Rs 22.39.

In the past week 375 scrips traded in which 230 scrips advanced, 134 declined while the value of 11 scrips remained intact. Nestle Pakistan and Unilever Foods remained the top gainer by Rs 525 and Rs 256.95 to close at Rs 10,500 and Rs 8,312 respectively, while Rafhan Maize and Hinopak Motors Limited were among the major loser which lost Rs 189.86 and Rs 34.05 to close at Rs 9,700 and Rs 886.50 respectively.

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Strong Foreign Interest in Habib Bank’s (HBL PA +1.47%) Sell-Off

The deal to offload the government's 41.5 percent share in HBL. The government was expecting around $750 million from this transaction as against has had offers of more than $1.2 billion for its remaining stake in the country's largest private bank HBL. This would be the largest transaction in the history of Pakistan’s capital market. The first day of the trading of the offered shares on the local exchanges is expected before May 2015. The offering has received offers from both local and foreign funds. The bids will be entertained in such a manner that the highest bidders will be considered first no matter if they are local or foreign.

The Privatisation Commission recommended divesting the remaining shares earlier this year and that the offers were made through book building at a floor price of Rs166/share. Offerings were made at stock markets in London, New York, Singapore and Dubai. 

The offer, through the book building, was made only to the institutional investors and high net worth individuals, consisting of 250 million ordinary shares representing 17 percent of the total paid- up capital of HBL with an upsize option of up to additional 359.317 million shares, which denote a further 24.5 percent of the paid-up capital. HBL posted a profit after tax of Rs31.819 billion, translating into earning per share of Rs21.63 for the year ended December 31, 2014. The bank’s total assets stood at Rs1.867 trillion as of end December 2014.

HBL, which opened in 1947, has 1,425 branches in Pakistan. Its foreign network is spread over 26 countries. HBL, formerly known as Habib Bank Limited, was part-privatised in 2003, with the Agha Khan Foundation buying the bulk of the shares.

  

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