In our today’s morning report we would present our outlook on Hub Power Company Limited (HUBC) along with recommendation for the investors.

Strong rebound in earning expected
We expect Hubco to post better earning growth in FY15 after dismissal performance of FY14 on account of higher maintenance cost in last year. Profit after taxation likely to clock at Rs 8.88 billion (EPS: Rs 7.68) compared to Rs 6.54 billion (EPS: Rs 5.66) in FY14 due to increase in Project Cost Equity (PCE), lower maintenance cost and higher penal income. Moving forward company is expected to experience strong earning growth on account of high Project Company Equity (PCE) which would rise by 6% YoY in FY15. We estimate an increase on 3 year CAGR of around 27% on the back of expected growth in the escalable component of CPP and lower repair and maintenance cost.

Dividend growth on the rise
As company remains among the most defensive stocks due to its dividend payout history, we expect dividends are expected to grow at a (FY15-27F) CAGR of 18%. In FY14 company paid lower dividend due to decline in earnings on account of higher maintenance cost. The payout ratio of the company in FY14 was 115% as compared to 98% in FY’13. We expect payout remain strong around 98%. At present the stock is giving a dividend yield of 10% on FY16 earnings.

Higher load factor would propel top-line
Despite lower furnace oil prices, top line of the company is expected to witness 3% YoY rise in FY15 reaching Rs 166.45 billion against Rs 161.80 billion in FY14 due to higher load factor of 79% expected. We expect the top line of the company to surge by 2% CAGR (FY15-17) on the back of higher load factor. We anticipate the gross profit of the company to escalate at 3 years CAGR (FY15-17) of 7.2% to Rs 15.37 billion in FY17 against Rs 13.37 billion in FY14. The higher sales would be an outcome of increased production with an average load factor of 79%.

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HUBC Dividend Analysis

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