Hemas Power – Best pick in the Power Generation Sector?

hariesha Thu Jun 13, 2013 3:11 pm

About a year back, I commented/published in this forum why we should not look at power generating and rubber sectors for investing. Power was overlooked because of the prevailed drought and rubber was due to declining prices. On these two sectors, there’s no clear indication of appreciating of the rubber prices yet though it seem to be stable. On the other hand, power generating sector is getting attractive.

Why?

Sri Lanka is having four main rain seasons.

1. First Inter monsoon Season - March - April

2. Southwest monsoon season - May - September

3. Second Inter monsoon season - October - November

4. Northeast Monsoon season - December – February

We had a good north east monsoon season towards end of last year and in January this year, a very productive first inter monsoon season and now we are into a good southwest monsoon season. So we are experiencing three consecutive rainy seasons after several years. This will definitely benefit hydro power generation in next two quarters as well.

I have analyzed the sector on three aspects, Price Earnings ratio, Price to Book Value and Dividend yield. In all three indicators, Hemas Power is trading at 50% discount to the sector.

· HPWR is continuously in expansion mood. Will increase local power generating capacity by taking the control of PAP or managing PAP as largest shareholder. Numbers of projects are in the pre-development stage in locally and East African countries.
· In falling interest rate scenario, a dividend yield of 7%+ would be very attractive. In the past company maintained the dividend policy intact with new project developments and acquisitions.
· Share is trading almost 50% discount to the sector, based on forward PE, PBV ratios and Dividend yield wise.
· HPWR is a very good defensive share in volatile market conditions.

Link to previous topic - Valuation Guide to Power Sector

http://research.srilankaequity.com/t740-valuation-guide-to-power-sector

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