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THE HUB POWER COMPANY LIMITED

TEAM

SZABIST

CFA - GIRCDecember 13, 2010

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TABLE OF CONTENTS

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1. HUBCO Overview

2. Recommendation

1. Steady Dividend Yield

2. Low Risk

1. Key Investment Risks1. Circular Debt Issue

2. Delay in Narowal Project

3. Expansion Plans

4. Valuation

3. HUBCO & The Power Sector

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VIDEO

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Steady ividend ield

Low Risk

Expansion Plans

Valuation

RECOMMEN ATION

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KEY INVESTMENT RISKS

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Circular Debt Issue

Delay in Narowal Project

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CI CULAR

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Consumers

istribution Companies

Power Generation Companies

Fuel Suppliers

Refineries and International fuel suppliers

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Circular Debt

Cost of powergeneration exceeding

average electricitytariff

Distribution companiesnot able to fully

recover even the lowtariffs from consumers

Transmission anddistribution losses

REA ON OF CIRCULARDEBT

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EFFECTS OF CIRCULAR DEBT ON HUBCO

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Liquidity position of HUBCO is expected to stay stressed

Increase short term borrowing thus adding to financial

charges Hurt dividend paying ability

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RESOLVING CIRCULAR DEBT

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LOW RISK

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HUBCO have sovereign Guarantee of Govt. Of Pakistan

Receive guaranteed Tariff from WAPDA

Provides a direct hedge against rupee depreciation

Guards against inflation providing real returns

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EXPANSION PLANS

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Expansion

Narowal Laraib

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VALUATION

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We recommend our BUY on HUBC with Jun 11 Fair Value of PKR 46/Share based onDividend Discount Model Valuation trading at a discount of 27%.

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HUBCO & THE POWER SECTOR

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SECTOR REVIEW

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Deficient sector

Demand has increased at a CAGR of 5.8% over the last decade while the supply has

grown by only 2.25%

Power shortage of around 4000MW-5000MW

Introducing Independent Power Producers (IPPs)

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IPPS

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BRIDGING THE GAP

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Inducting Independent Power Producers

(IPPs)

Rent out Electricity from Rental Power

Projects(RPPs)

RPPs have 8-10% higher Tariff structure

than that of IPPs

Short-term nature of these power plants

Will allow the Government to focus oninitiating cheap source of Power

Generation

Ill-Planningof precedinggovernments

Lack ofstrategic

planning ofeconomic

plan

EnergyShortage

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Power: The Way towards GrowthPower: The Way towards Growth

y Expansion avenues

y Now more prone to external

shocks

y Increased quantum of differentialbetween the tariff and actual cost

y Tariff to match the cost by the end

of 2011

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POWER SECTOR OUTSHINING REGIONAL PEERS

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THANK YOU

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APPENDIX

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EP P

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EP

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TARIFF HIKE TRANSCRIPTION

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Eliminate the overall Power Subsidies from the Electricity System of the country

Electricity tariffs have been increased by more than 30%

Average Generation cost of NEPRA comes out to be PKR 10.2/KWh, end consumers pay

PKR 7.32/KWh

40% Increase is imperative for eliminating the Power Tariff Differential

Ease down the Receivables and Cash flow Position of the Power Companies and decrease

the Finance cost

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INVESTMENT CONSIDERATION

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The Tariff structure for the company is U Shaped as outlined in Power Purchase

Agreement(PPA).

The Tariff took a downfall till FY05 and then started rising.

Going forward the Project Component of Equity(PCE) is expected to rise.

This upswing in the PCE of the company is expected to induce growth in theCompanys bottom line in FY11 and onwards.

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HUBCO TARIFF PCE COMPONENT

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FINANCIALS

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