Karachi, October 29, 2021 (PPI-OT): Oct’21 Inflation and HUBC preview

Oct’21 inflation is expected at 8.94%YoY vs. 8.98%YoY in the previous month whereas monthly inflation is likely to stand at 1.66% – recording 4th consecutive positive reading on a monthly basis.

In our base case, we have revised up our FY22 oil assumption to US$70/bbl and our monthly food inflation forecast to 93bps from 68bps previously, pushing up our FY22 forecast to 9.5%YoY from 8.6%YoY previously. However, our inflation outlook is subject to great uncertainty given lack of prints on the IMF program.

We still believe real interest rates likely to remain negative in the near term, with the Central Bank putting more weight on External Account. In this regard, we expect monetary course to continue despite unlocking of dollar flows easing pressure on rupee with authorities targeting a more sustainable External Account going forward. We expect a 50bps hike in interest rates in the upcoming monetary policy meeting in Nov’21, taking policy rate to 7.75% by CY21-end.

Apart from inflation today’s reading includes 1QFY22 earnings preview of HUBC. We forecast the company to post a consolidated NPAT of 1QFY22 of PKR8.6bn (EPS: PkR6.6) as opposed to NPAT of PKR8.1bn (EPS: PKR6.3) during 1QFY21. Along with the result, we expect the company to announce an interim cash dividend of PkR2.5/sh.

HUBCO – Earnings expected at PkR6.6/sh: The board of directors of Hub Power Company Limited (HUBC) is scheduled to meet today to announce its 1QFY22 financial results. We forecast the company to post a consolidated NPAT of 1QFY22 of PKR8.6bn (EPS: PkR6.6) as opposed to NPAT of PKR8.1bn (EPS: PKR6.3) during 1QFY21. Along with the result, we expect the company to announce an interim cash dividend of PkR2.5/sh. During 1QFY22, sales are expected to increase by 51%YoY on the back of higher dispatches. The load factors of individual plants improved by 30% – 55% amid higher demand from NTDC whereas the PkR also depreciated by ~5.8% during the quarter. A fall in finance cost (by 10%YoY) and increase in share of profits from subsidiary (up 15%YoY) also supported the earnings. We have a buy call on the scrip with a TP of 168/sh.