JSCL is a financial service Holding Company, which also makes long term investments in growing public companies in Pakistan and engages in principal trading activities. Their financial services business comprises investments in companies in three operating areas: banking, insurance and other financial services.
In banking, JS Bank Ltd's most notable transaction this year was the acquisition of the Pakistan branches of American Express Bank Ltd. These assets were merged with Jahangir Siddiqui Investment Bank Ltd, and listed the combined entity, under the name of JS Bank Ltd, on the Karachi Stock Exchange.
Their investment in BankIslami Pakistan Ltd continues to perform well, as the rapid branch expansion plan continues and deposit mobilization accelerates. For the calendar year 2006 EFU General Insurance Ltd, EFU Life Assurance Ltd and Allianz EFU Health Insurance Ltd booked combined revenues of Rs 12.2 billion (US $203.3 million), continuing their leadership as Pakistan's largest insurance group. EFU General Insurance Ltd consolidated its number one position in the general insurance sector as industry leader in terms of premium income and therefore market share in the general insurance business.
In the Non Bank Financial Services JS Global Capital Ltd and Global Investment House K.S.C.C., Kuwait ("Global") reached an agreement. JSGCL issued 10,009,700 Ordinary Shares at a subscription price of Rs 217 per share (for total proceeds of Rs 2.2 billion or US $36.2 million) to Global. This transaction resulted in a change of status of JSGCL from a subsidiary to an associate of JSCL as Global and JSCL each hold 43.5% of the equity of JSGCL.
The asset management subsidiary, JS ABAMCO Ltd, continued to maintain its growth trajectory with approximately Rs 29.0 billion (US $483.3 million) in assets under management at the end of the Year. In 2007, JS ABAMCO Ltd was successfully listed on the KSE and its oversubscribed secondary offering raised Rs 1.3 billion (US $21.0 million).
MARKET PERFORMANCE:
2007 turned out to be yet another strong year for Pakistan's equity markets. The Karachi Stock Exchange (KSE) was one of the best performing markets in the region. Unlike previous years, 2007 witnessed significant foreign funds' inflows into the local markets on the back of substantial liquidity flows in general into Asian emerging markets. The KSE-100 Index registered a 38% gain during the Year compared to a 34% gain in 2006. This took the average 5-year annualized return of the Index to 48%. Banks have now taken over as the largest listed sector with a 31% weight in market capitalisation versus 21% at the beginning of 2007. Partly as a consequence of this, the weight of the E&P sector declined to 19% from 29% at the beginning of the Year.
2007 proved to be a better year than 2006 in terms of new listings and the amount of capital raised. During the Year, thirteen new companies were listed on the stock exchange, compared to nine companies in 2006. As a result, Rs 6.5 billion (US $108.3 million 2) was raised this Year compared to Rs 3.6 billion (US $60.0 million) in the prior Year from domestic markets. More significantly, three Pakistani companies raised a total of US $1.5 billion via Global Depository Receipts ("GDRs") issued on the London Stock Exchange.
In the Debt Markets a total of eleven listed Term Finance Certificates (corporate bonds) were issued during the Year. The total amount issued was above Rs 11.6 billion (US $193.3 million) compared to eight issues that raised Rs 10.1 billion (US $168.3 million) in the prior Year. The growing mutual fund and insurance industries are fuelling demand for corporate bonds and we expect the coming year to be a very strong year for bond issuances.
The profitability position of JSCL has seen a magnificent growth of 105.5% to Rs 2.24 billion at the end of FY07 on the back of the brilliant performance of the capital markets, the banking and the insurance sectors. The ROA jumped to 16.5% (2006: 11.6%). This was despite an assets growth of 35.6% taking the total assets to Rs 15.6 billion.
JSCL issued new shares worth 700 million. The reserves after an increase of 43.6% stood at Rs 7.23 billion. This led to an increase in equity by 53.8% raising the total equity to Rs 8.28 billion. But the strong profits growth led to an ROE increase to 32.8% from 24.1% in 2006.
The market value of JSCL has seen a sharp incline due to a strong confidence of the investors in the fundamentals of the company. The share price in 2004 hovered around the Rs 94 mark. However the subsequent years saw the share price jump to a staggering Rs 433 in 2007. The EPS has also risen with the superb profitability position of the company. The EPS for 2007 was Rs 53.31. Even then the P/E is operating at a multiple of 8.13. Similarly the BV of JSCL for 2007 was 78.83. The sharp incline in the share price caused the MV/BV ratio shoot up from 1.18x in 2006 to 5.49x in 2007. The share price is expected to rise given the strong fundamentals of the company, the vibrant Pakistani economy and the flourishing KSE.
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2004 2005 2006 2007
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Average MV 94.70 105.50 182.15 433.16
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JSCL has been very consistent with its dividends policy, maintaining a dividend per share of 2.5 per share for the last three years. There has been an improvement in the percentage of the profits been given out as dividends as indicated by a decline in % of earnings retained. However dividend payout and dividend yield have seen a decline. Dividend payout has the potential to increase as the company's profits grow bringing in expectations of higher dividends. However dividend yield may go further down as the share price of JSCL continue to rocket up.
Overall, the current ratio of the company has shown a decline in the period under study. The reason has been that, while current assets have shown a healthy growth, they were outpaced by the growth in current liabilities. Current assets increased from Rs 2.7 billion in FY04 to Rs 5 billion in FY05, a nearly 100% rise. They further rose to Rs 6.1 billion in FY06, and Rs 9.3 billion in FY07, year-on-year increases of 22% and 52% respectively.
This growth in current assets was mostly accounted for by a steep upward trend in short-term investments, which rose from Rs 1.6 billion in FY04 to Rs 7.7 billion in FY07, thus having multiplied nearly 4 times. On the other hand, current liabilities increased from Rs 0.6 billion in CY04 to over Rs 2 billion in CY05, an increase of more than 200%. They rose to Rs 4.4 billion in FY06, thus having increased by another 120, but then decreased to Rs 3.6 billion, ie by 18%. This decrease was reflected in the current ratio as a small increase in FY07.
Both the solvency ratio and the equity to assets ratio followed a similar trend, decreasing from FY04 to FY06, and then rising slightly in FY07. This can be attributed to the fact that growth in current liabilities has been mainly responsible for the growth in overall liabilities, so a decline in these in FY07 also slowed down the increase in overall liabilities. In general, the solvency of the company appears to be respectable, and it can be reasonably expected to meet its obligations.
The debt figures for the company show that its debt to assets and debt to equity ratios increased over the period under analysis, while the times interest earned ratio declined. This indicates that the company is operating in an increasingly leveraged position.
That debt increased from financing 32% of assets in FY04 to 43% in FY05 and 52% in FY06 clearly highlights this point. Furthermore, the times interest earned for the company has also declined due to the higher interest payments generated by these increasing liabilities outpacing the otherwise healthy growth in net income, thus showing that the company is spending more resources meeting these obligations.
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RATIOS
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2004 2005 2006 2007
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Profitability
ROA 15.2% 14.8% 11.6% 16.5%
ROE 20.7% 25.7% 24.1% 32.8%
Average No of shares 35,0 35,0 35,0 105,0
Market value ratios
Average Share Price 94 105. 182. 433.
P/E
MV/BV
BV 96 104. 153. 78
Dividend payout
dividend 52,5 87,5 87,5 262,5
dividend per share
dividend yield 1.6% 2.4% 1.4% 0.6%
Dividend payout 6.4% 9.7% 8.0% 4.7%
% of earnings retained 93.1% 90.3% 92.0% 88.3%
Liquidity
current ratio 4.4 2.9 1.7 1.9
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Debt management
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debt to asset 32.5% 42.6% 51.8% 49.6%
debt to equity 48.3% 74.2% 107.5% 98.5%
times interest earned 11
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Solvency
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equity to assets 0.67 0.50 0.47 0.53
solvency ratio 0.47 0.25 0.18 0.31
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