Cyan Limited

Cyan Limited (PSX: CYAN), part of the DH group,is a public limited company established in 1960 under the Companies Act, 1913 (now Companies Act, 2017). It is a subsidiary of Dawood Corporation (Private) Limited. It makes equity investments in companies that exhibit a high growth potential.

Shareholding pattern

As at December 31, 2021, nearly 67 percent shares are owned by the associated companies, undertakings and related parties. Within this category, Dawood Corporation (Private) Limited owns majority of the shares. Close to 24 percent shares are owned by the local general public, followed by 9 percent held by the directors, CEO, their spouses and minor children. Within this, majority are held by Mr. Hussain Dawood. The remaining less than 1 percent share is with the rest of the shareholder categories.

Historical operational performance

The company has seen fluctuating income levels, while net margin has shown some stability in the last three years between CY19 and CY21. Cyan Limited’s two main and consistent income streams are return on investments and gain on sale of investments.

In CY18, net income stood at a negative Rs 82 million, that was lower than the negative Rs 425 million seen in CY17. This was due to significant unrealized diminution on re-measurement of investments at Rs 420 million. On the other hand, gain on sale of investments grew to Rs 229 million versus Rs 85 million in CY17 that largely contributed to the net income. With further expenses incurred, the company eventually incurred a loss of Rs 218 million. However, this was considerably lower than Rs 538 million loss seen in the previous year.

Net income in CY19 improved as it was recorded at Rs 251 million, with gain on sale of investments continuing to be the major contributor. However, the near absence of unrealized diminution on remeasurement of investments was primarily responsible for a positive net income. Moreover, during the period, the company maintained its exposure to public equities at 92 percent on average, while 8 percent was directed towards mutual funds and government securities. Eventually, the company managed to post a positive bottomline at Rs 98 million.

At Rs 756 million, net income in CY20 was the highest seen between CY17 and CY21. A major contributor to this was gain on sale of investments, combined with unrealized appreciation on re-measurement of investments that was recorded at Rs 230 million. Moreover, during the period, the company had 97 percent exposure towards public equities due to some clarity seen in the economy as the country entered the IMF programme, coupled with an expectation of a favourable balance of payments as PKR depreciated against the US Dollar. The remaining 3 percent was directed towards mutual fund and government securities. Thus, the bottomline stood at a considerably better Rs 357 million.

In CY21, net income fell to Rs 435 million as unrealized diminution on remeasurement of investments grew to Rs 244 million compared to an appreciation of Rs 230 million in the previous year. Although gain on sale of investments registered an over 24 percent rise, coupled with an increase in return on investments as well, the two together were offset by the unrealized diminution. In the first half of the year, equity holdings were majorly in cements, technology and communication, vanaspati and allied industries, and textile composites. In the second half, it was realigned to make investments in commercial banking. While the company did post a positive bottomline at Rs 203 million, it was lower compared to Rs 357 million witnessed in the previous year.

Quarterly results and future outlook

Net income in the first quarter of CY22 was recorded at a negative Rs 4.9 billion compared to a positive Rs 546 million in the same period last year. This was due to considerable income earned from gain on sale of investments and unrealized appreciation on remeasurement of investments in 1QCY21. While the former was nearly absent in 1QCY22, the latter saw an unrealized diminution instead. The year began with challenges as resumption of IMF program was delayed, coupled with the Ukraine-Russia war that spiraled global commodity prices resulting in external account pressures. Thus, the quarter ended with a negative bottomline of Rs 47.5 million, versus a net profit of Rs 420 million in 1QCY21.

Net income in the second quarter was again significantly lower at a negative Rs 257 million, compared to a positive Rs 509 million. This was again due to unrealized diminution on remeasurement of investments, compared to an appreciation in the same period last year. Additionally, the company incurred a loss on investments of almost Rs 17 million compared to a gain of Rs 261 million in 2QCY21 that had an adverse impact on bottomline that was recorded at a loss of almost Rs 254 million, versus a profit of Rs 416.6 million in the same period last year. During the period the company altered its strategy to invest in high yielding blue chip stocks. FY23 is expected to be a challenging year, and shifting to high yielding stockswill be the primary change for the company. But market is expected to revert to its growth trajectory as IMF disbursement comes through, in addition to funds from bilateral countries.