Karachi, August 06, 2021 (PPI-OT): EPCL and HUBC Result Previews

EPCL to post 2QCY21 EPS of PkR5.70: Engro Polymer and Chemicals Ltd’s (EPCL) board is scheduled to meet on 10th Aug’21 to announce its financial result. We expect EPCL to post 2QCY21 NPAT of PkR5.17bn (EPS: PkR5.70), as compared to PkR13mn (EPS: PkR0.01) in the same period last year. This will take 1HCY21 NPAT to PkR9.32bn (EPS: PkR10.25) vs. PkR206mn (EPS: PkR0.23) in 1HCY20. To recall, EPCL’s PVC production and sales took a hit in 1HCY20 due to plant disruption and COVID’19 lockdown. For 2QCY21 only, the earnings are also expected to be up sequentially 25% courtesy 10%QoQ increase in revenues amid 7ppt QoQ increase in gross margins expected (19% QoQ increase in PVC ethylene margins with 2QCY21 average: US$1,004/MT). With PVC line III operational since Mar’21 taking quarterly capacity to 74K MT, we have assumed PVC sales at 60K MT for 2QCY21, where VCM debottlenecking in next quarter would enable EPCL to further unlock its PVC production capacity. Despite assuming normalization of PVC ethylene margins and gas price increase 3QCY21 onwards, EPCL trades at CY21/22F P/E of 4.37/6.76x. Our TP of PkR74/sh implies an upside of 29.8% from last close – Buy!

HUBC to post 28%YoY higher FY21 NPAT; payouts not expected: We expect Hub Power Company Ltd (HUBC) to post 4QFY21 NPAT of PkR7.2bn (EPS: PkR5.59), up 7% on YoY basis, but down 15%QoQ. This will take the FY21 NPAT to PkR32.2bn (EPS: PkR24.8), up 28%YoY. For 4QFY21 alone, a steep 30%YoY decline in finance cost amid low interest rates and lower effective tax rate of 11% vs. 31% in the same period last year (25% WHT on dividend income from 46% owned CHPGC for entire FY20) will be offset by lower profits expected from CPHGC. For FY21, the 28%YoY increase in earnings is expected on the back of 37%YoY decline in finance cost, 11%YoY higher income from CPHGC and absence of PkR1.0bn transfer of share of 1.5% stake in CPHGC to GoB recorded in the same period last year. We do not expect HUBC to announce any payouts with the upcoming financial results, keeping full year payouts at PkR7.0/sh. Going forward, PIBs and Sukuks received as part of circular debt settlement (coupon payments at ~PkR5bn) would enable the IPP to divert it for partial debt repayments (~PkR8 to 10bn in FY22/23F), supporting the liquidity situation for the IPP in longer term.