Optimus Research has retained its HUBC Underperform rating, warning that regulatory tariff adjustments, CPHGC true-up risks and the early retirement of the company’s Base Plant could outweigh its growing exposure to electric vehicles, mining and exploration.
The Hub Power Company Limited is facing a difficult valuation battle as regulatory risks surrounding its power portfolio threaten to overshadow the company’s aggressive diversification into electric vehicles, coal mining and oil and gas exploration.
Optimus Research has maintained its HUBC Underperform rating with a sum-of-the-parts fair value of Rs176 per share, compared with HUBC’s latest closing price of Rs225.64. The target implies a potential downside of about 22 percent, even after factoring in an estimated FY27 dividend yield of 6.6 percent.
The brokerage estimates a negative total return of 15.4 percent and argues that HUBC’s traditional power assets remain the biggest source of uncertainty for investors.
HUBC Underperform Rating Driven by CPHGC True-Up Risk
The most serious concern is China Power Hub Generation Company, or CPHGC, which has emerged as HUBC’s largest cash flow contributor following the retirement of the company’s original Base Plant.
Optimus Research believes CPHGC faces limited prospects of reversing the National Electric Power Regulatory Authority’s decision to reduce its annual return on equity from 129.9 million dollars to 92.2 million dollars, a reduction of 29.1 percent.
The regulator based the adjustment on a lower indexed capital cost and a 33-month actual construction period instead of the 48 months allowed under the original upfront tariff.
The steel-cost indexation methodology has become particularly important. NEPRA used the US Producer Price Index for Iron and Steel, while CPHGC relied on a Steel Power Boilers Index. According to Optimus, this difference resulted in a 13.3 percent reduction in indexed capital cost under NEPRA’s methodology compared with only 0.2 percent under CPHGC’s approach.
That could translate into a significant hit to future cash generation.
CPHGC Could Face Billions in Historical Over-Recoveries
The potential problem extends beyond lower future earnings.
Optimus estimates that CPHGC accumulated approximately Rs70 billion in historical over-collections, which could eventually become a repayment obligation once the true-up takes effect. An additional Rs15.2 billion in debt-related over-recoveries could also emerge by FY28.
The brokerage expects CPHGC to distribute around Rs34 billion to HUBC in FY27, but estimates annual return on equity could decline to about Rs29 billion in FY28 and Rs31 billion in FY29 after the true-up.
This is a critical risk because CPHGC has become one of the most important pillars of HUBC’s cash-generation model. Any permanent reduction in its regulated returns could therefore have a much larger impact on valuation than the headline diversification story suggests.
TEL and TNPTL Also Face Tariff Adjustments
The regulatory pressure is not limited to CPHGC.
Optimus expects Thar Energy Limited and Thar Nova Power Thar Limited to face similar adjustments when their respective true-ups are completed. The brokerage estimates that approved capital costs for both projects could decline by 10.4 percent under the same indexation methodology.
That could reduce annual return on equity by about 8.8 percent, or approximately 3.35 million dollars, bringing the annual amount to nearly 34.8 million dollars for each plant.
Although both plants have started generating dividends, part of their cash remains constrained by standby letters of credit connected with disputed liquidated damages and potential debt-service requirements.
The brokerage therefore expects the two projects to move to true-up tariffs from FY29.
Early Base Plant Retirement Removes Another Earnings Pillar
HUBC’s original Base Plant is another reason behind the HUBC Underperform rating.
The plant, which began operations in 1997 under a 30-year power purchase agreement, was shut down in October 2024 as part of broader reforms in Pakistan’s power sector.
HUBC received Rs36.5 billion against outstanding receivables, while the government assumed around Rs28 billion in payables to Pakistan State Oil, providing an estimated economic benefit of Rs64.5 billion.
However, the settlement does not replace the plant’s long-term earnings potential.
HUBC is considering alternative uses for the site, including oil storage and transportation infrastructure, an aluminium smelting facility and a potential data centre. Optimus has assigned no valuation to these proposals because they remain at an early development stage.
The brokerage estimates that the early termination removed about Rs19.4 per share from its discounted cash flow valuation.
Electric Vehicles Could Become HUBC’s Biggest Growth Bet
While the legacy power business is under pressure, HUBC is attempting to build an entirely different growth story through electric vehicles.
Through Mega Motors Company, HUBC entered Pakistan’s new-energy vehicle market in partnership with BYD, introducing the Atto 3 and Seal electric vehicles and later launching the Shark 6 plug-in hybrid vehicle.
More than 2,000 vehicles were reportedly delivered during the first six months after launch, with another shipment of approximately 2,000 vehicles subsequently arriving in Pakistan.
The bigger opportunity, however, is local manufacturing.
A 25,000-unit CKD assembly plant at Gharo is nearing completion and is expected to begin commercial production in the first half of FY27. Local assembly could reduce import-related duties, improve cost efficiency and give the company greater pricing flexibility.
Optimus forecasts sales of 11,000 vehicles in FY27, increasing to 13,000 in FY28 and 14,000 in FY29.
The brokerage expects net margins to rise from around 5 percent to 7.5 percent as localization improves. Mega Motors could contribute Rs3.37 per share to HUBC earnings in FY28 and Rs4.96 per share in FY29.
Optimus values Mega Motors at Rs67.9 billion and estimates its discounted contribution at Rs20.2 per HUBC share.
Mining Expansion Faces Delays
HUBC’s mining strategy also faces execution challenges.
The Phase III expansion of Sindh Engro Coal Mining Company was initially scheduled to begin commercial operations in December 2024, but the project has been delayed. Financial close is now expected by August 2026.
The project has faced complications after the lowest EPC bidder withdrew over sovereign-risk concerns, while high confirmation charges have delayed letters of credit. Equipment procurement has also been affected by longer lead times.
The 72.7 million dollar expansion is expected to be financed through 53 million dollars of debt and 19.7 million dollars through pre-commercial-operation coal sales to Lucky Electric.
While the project should increase coal production, Optimus does not expect it to generate additional return on equity because it does not require a new equity injection.
Oil and Gas Provides Another Growth Option
HUBC is also building exposure to exploration and production through Prime International Oil and Gas Company, a 50:50 joint venture involving Hub Power Holdings and employees of ENI Pakistan.
The venture contributed an estimated Rs2 billion to consolidated profit in FY25. Optimus expects contributions of approximately Rs1.3 billion in both FY26 and FY27.
Prime has estimated gas reserves of around 103 billion cubic feet as of June 2026, equivalent to roughly eight years of reserve life at the current production rate.
The company is also expanding into additional onshore and offshore exploration blocks, although some regulatory approvals remain outstanding.
HUBC Earnings Could Become Highly Volatile
The earnings outlook highlights the scale of the transition facing HUBC.
Optimus expects consolidated revenue of Rs72.4 billion in FY27, increasing to Rs75 billion in FY28 and Rs77.6 billion in FY29.
However, attributable profit is projected to fall sharply from Rs48.1 billion in FY27 to Rs18.8 billion in FY28 before recovering to Rs48.2 billion in FY29.
Earnings per share are forecast at Rs37.09 in FY27, Rs14.48 in FY28 and Rs37.15 in FY29. Dividend per share is expected at Rs15, Rs16.50 and Rs18.50, respectively.
The Real Question for HUBC Investors
HUBC’s diversification strategy is impressive, but investors face a timing problem.
Electric vehicles, mining and exploration could eventually reduce the company’s dependence on regulated power assets. However, these businesses are still developing, while the regulatory pressure on legacy power projects is immediate.
Optimus estimates that the diversified businesses currently represent only about 22 percent of HUBC’s valuation. That means the majority of the company’s value remains exposed to power-sector regulation.
This is the central weakness in the HUBC investment story.
The company is building new businesses, but those businesses have not yet become large enough to compensate for the potential erosion of returns from its established power assets.
For investors, the debate is therefore no longer simply about whether HUBC can diversify. The bigger question is whether its new businesses can grow fast enough to replace the cash flows being lost from its legacy power portfolio.
Until that transition becomes clearer, Optimus Research believes the regulatory risks outweigh the diversification potential, supporting its HUBC Underperform rating and Rs176 fair value.