JS Global Capital Limited (formerly JS Capital Markets Ltd), with long term rating of AA by PACRA, is a subsidiary of Jahangir Siddiqui Company Limited. The company started its formal operations in September 2003. Its principal activities are share brokerage, money market and foreign exchange brokerage, equity research, advisory and consultancy services.
It is a public listed company, which trades on Karachi Stock Exchange and one of the top three equity brokers in Pakistan. JSGCL provides financing and advisory services too its parent group, JS Group. In 2006, Global Investment House K.S.C.C., a leading Kuwait-based regional investment bank in the Middle East invested USD 37 million in JS Capital Markets through an acquisition of 42.8 percent equity stake. As a result, the company was renamed as JS Global Capital Limited and the equity of the company was raised to USD 47 million. JS Global Capital has a capital adequacy of USD 762 million, which is the highest in the country for a stock brokerage, business financing and advisory services.
JS Global Capital Ltd has recently finalised an agreement with Mubasher of Dubai to introduce the next generation of online trading system in Pakistan. The Mubasher system will offer a fast, secure and simple online service to its investors due to its foreign design and operation under the FIX protocol. The inclusion of the Dubai and Abu Dhabi markets would make the JS Global platform the first multi-exchange online environment in Pakistan offering the largest range of market options to investors.
Capital markets recent performance:
Pakistans capital market has been going through difficult times since last year. Presently, volatile situation within the market is conducive for trading only, rather than raising capital for the industry. The market floor, which was imposed on August 28, 2008, was lifted on 15th December 2008 without the resolution of CFS Mark-II issues. As a result, after the removal of floor, several stakeholders resorted to litigation to solve their unresolved issues pertaining to CFS Mark-II, as these parties were not taken into confidence in the resolution of their mutual disputes.
The floor itself proved harmful and led to many operational, structural and risk management issues with the market. The imposition of floor on equities resulted in a virtual halt of the stock market and shattered the investors confidence. In the bigger perspective, global economic meltdown and internal security environment has increased investors anxiety and affected the performance of Pakistans equity markets. Market fell by 36 percent in 12 trading sessions after the lifting of freeze.
The much-awaited decision regarding accounting treatment of impairment value of available-for-sale equities was announced last month. Eventually, relaxation was given in implementation of International Accounting Standard-39 (IAS-39) and now, these would be shown on the equity side of the balance sheets. The decision has brought to an end to all the ambiguities about the impairment of investment values, still the analysts call the decision as out-of-the-way method to support ailing market and again proves the inability of Pakistans corporate sector to absorb shocks.
FY08 has been a brutal year for the global stock markets. Equity markets in Pakistan also faced difficult times; share prices plunged to a massive 58 percent and market capitalisation in the second half declined by 52 percent. Due to global financial meltdown, prices of almost all asset classes came down and the world is in the grip of deep economic recession. This collapse, initially thought to be confined to the US home mortgage sector, actually had the domino effect, which resulted into a full-blown global credit crisis.
RECENT PERFORMANCE (1H-FY09)
JSGCL, in line with industry performance, showed negative profitability in the first half of FY09 as compared to the same period last year (SPLY). In the six-month period, the company posted a loss after tax of Rs. 268.049 million as compared to a profit of Rs 256.188 million in the SPLY. Profit and loss statement shows that operating revenue decline by 51.6 period in the period under review. This was mainly due to 54.9 percent decline in brokerage and operating income in the six-month period. Advisory and consultancy fee, on the other hand, showed a growth of 85.5 percent in the 1HFY09 as compared to SPLY. This was due to a technical closure of equity brokerage services for almost three and a half months. Income from reverse repurchase/continuous funding transactions and gain on revaluation of investments showed negative figures. However, capital gain on sale of investments showed 27.2 percent growth in the 1HFY09. Administrative and operating expenses declined by 15.5 percent.
Other income increased by 42.6 percent in the six-month period and stood at Rs 106.756 million as compared to Rs 74.86 million in the SPLY. With the operating income, income from financial assets increased by 41.3 percent whereas income from non-financial assets increased by 53.5 percent.
Within the six-month period, bad debts amounting Rs 8.859 million were also incurred. Most importantly, provision of Rs. 580.668 million were made against doubtful trade receivables balances.
Negative profitability in the 1HFY09 also affected the earnings per share of the company. Loss per share for the six-month period was Rs 5.36 as compared to EPS of Rs 5.12 per share for the same period last year.
FINANCIAL PERFORMANCE (FY04-FY08)
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Recent Performance 1H-09 1H-08 CHANGE
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Operating revenue 156,490,367 323,414,039 -51.6%
Capital gain on sale of investments 41,903,082 32,943,325 27.2%
Administrative and operating expenses -173,054,040 -204,847,082 -15.5%
Bad Debt written off directly -8,859,797 - -
Provision for doubtful debts -580,668,173 - -
Other operating income 106,756,300 74,863,507 42.6%
Finance Cost -4,248,591 -5,036,252 -15.6%
Profit before taxation -433,797,813 313,193,795 -238.5%
Profit after taxation -268,049,648 256,188,206 -204.6%
Earnings per share - basic and diluted -5.36 5.12 -204.7%
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The overall profitability of JSGCL improved in FY07-08. PAT in the FY08 recorded a 55 percent growth and stood at Rs 624 million as compared to Rs 402.8 million in FY07. Total revenues stood at Rs. 1,132 million, which is actually 54 percent growth as compared to Rs. 734 million last year. Operating expense also showed somewhat similar growth of 49.9 percent in FY08 and stood at Rs 458.5 million as compared to last year (2007= Rs 305.7 million). Operating expenses mainly increased due to expansion of branch network, development of IT infrastructure and increased human resource costs.
Similarly, financial charges recorded almost 400 percent growth. This increase was mainly because the company had privately placed TFC to publicly unlisted company amounting to Rs. 936,751,824 at a mark-up rate of 9% per annum. The payment of TFC was partly made on 30 April 2008 and remaining payment was made on 15 May 2008. Gain on sale of investment showed 63.68 percent growth mainly due to capital gains on the sale of shares. Significant growth in PAT resulted in higher ROA and ROA in 2008 as compared to 2007. In 2008, 50 percent bonus shares were announced, as a result its impact was witnessed on lower than expected ROA and ROE.
ROA and ROE declined in FY07 mainly because of 10,009,700 shares issued to Global Investment House in FY07 which increased the equity by almost 500 percent. This decreased the ROE from 50.8 percent in 2006 to 13 percent in 2007. Similarly, ROA declined mainly due to 142 percent increase in total assets as compared to 52 percent increase in PAT. Also, both PAT/revenues and PBT/revenues showed marginal growth in FY08 as compared to FY07.
Both revenues and expenses showed significant growth in FY07 but the income to expense ratio of JSGCL decreased marginally in 2008 as compared to 2007. This is mainly due to greater increase in expenses compared to that in revenues showing a marginal decrease in companys ability to cover its expenses by given revenues.
The liquidity position of JSGCL has been improving for the last four years as depicted by the current ratio figures. Current ratio increased marginally from 2.30 in FY07 to 2.33 in FY08. This is due to very small growth rates observed in current assets and current liabilities which grew at 4.78 and 3.28 percent in FY08. Also higher current ratios of JSGCL are mainly due to higher marketable securities (current assets) as JSGCL is a security house. In the current assets, loans advance and other receivables showed 226.8 percent this year as compared to last year.
All the debt management ratios indicate JSGCLs decreased reliance on debt financing compared to equity financing. D/E ratio increased in 2005 from 2004 and but has been following a declining trend till 2008. D/E ratio of 2008 remained somewhat similar to previous year. This is because of marginal growth witnessed in both total debt and total equity of the company. D/E declined marginally in 2006 and sharply in 2007. This is mainly due to 496 percent increase in equity compared to 35 percent increase in debt in the FY07.
D/A also showed a trend somewhat similar to D/E. D/A declined marginally this year after a sharp decline in D/A in FY07. Total debt in FY08 grew at 3.2 percent as compared to 4.8 percent growth in total assets. TIE ratio plummeted in 2005 due to very high increase in financial charges coupled with lower EBIT. The ratio, since then, has been improving mainly due to lower growth in financial charges as compared to significant growths in EBIT. In 2007, the ratio recovered greatly as financial charges decreased by 7.3 percent to Rs. 11.89 million (2006: Rs 12.82 million) and EBIT increased by 50.5 percent to Rs. 478.5 million in 2007 to Rs. 317.8 million in 2006. Lower financial charges are mainly due to lower mark-ups on running finance.
This year, however, we see a trend similar to 2005. JSGCLs financial charges increased by almost 4 times in 2008 as compared to 2007 mainly due to issuance of TFCs worth Rs 936,751,824. An analysis of JSGCLs stock data against KSE 100 index showed mixed trends. Companys stock price showed favorable trends in the months of Sep and February of FY08 and start of FY08 as compared to 100 index. Besides these months, stock price henceforth did not match KSE 100 indexs performance.
JSGCLs earnings per share have been declining in the period under review indicating the companys increasing number of shares outstanding outweighing the effects of higher profitability. EPS further declined to 17.48 in FY08 (FY07 = 19.05) mainly due to 50 percent bonus shares given in FY08.
Similarly, JSGCLs book value per share has been showing significant growth in the period under study. Breakup value declined from 130.13 in FY07 to 91.90 in FY08. This is mainly due to 50 percent growth in number of shares outstanding as compared to 5.93 percent growth in total equity.
FUTURE OUTLOOK
Our capital markets have been particularly resilient to the ongoing external shocks. This is mainly due to less integration of the system and prudential regulations to some extent. However, the recent crises in the capital markets may have some impact due to global recession, yet, the major role has been played by internal policies and economic situations.
Imposition of floor for three and half months, macroeconomic instability and political volatility are the key reasons that have made the investors reluctant to take new position in the market. As a result, we have been witnessing decreasing investment from foreign investors. Further conditions are expected to worsen in the near future due to recent political crisis.
It is argued that market stabilization measures must be in place to help the stock bourses bail out from the crises. Measure to increase liquidity with the financial system and additional risk management of the leveraged products is necessary too.
Companys profitability, in particular, may improve in the near future keeping in view the recoveries expected from doubtful accounts. Also despite imposition of floor, operating revenue showed resilient performance. JSGCL will have to focus on revenue generation from avenues other than sole reliance on equity brokerage.
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JS Global Capitals - Financials
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Balance Sheet 2004 2005 2006 2007 2008
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SHARE CAPITAL AND RESERVES
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Issued, subscribed and paid up capital 60,000,000 100,000,000 138,000,000 238,097,000 357,145,500
Share Premium - 32,000,000 - 2,072,007,900 1,952,959,400
Unappropriated profit 40,006,665 127,306,180 385,514,334 788,332,175 995,796,550
Unrealized loss on remeasurement
of securities at fair value - (17,373,300) (3,474,660) - (23,686,148)
Total Shareholders Equity 100,006,665 241,932,880 520,039,674 3,098,437,075 3,282,215,302
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NON CURRENT LIABILITIES:
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Advance against issue of share - - 300,499,400 - -
Deferred taxation 203,217 597,452 791,803 1,567,285 1,440,366
Total current liabilities 203,217 597,452 301,291,203 1,567,285 1,440,366
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CURRENT LIABILITIES:
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Running finance under
mark-up agreements-secured - 256,408,309 176,890,535 246,473,078 -
Creditors, accrued expenses
and other liabilities 206,354,707 519,413,760 1,197,779,507 2,001,664,608 2,264,113,388
Interest and mark-up accrued - - - 540,717 15,067,150
Provision against taxation 25,773,350 44,108,943 42,755,104 69,667,638 115,138,087
Total Current Liabilities 232,128,057 819,931,012 1,417,425,146 2,317,805,324 2,394,318,625
Total Liabilities 232,331,274 820,528,464 1,718,716,349 2,319,372,609 2,395,758,991
Total Liabilities and Shareholders Equity 332,337,939 1,062,461,344 2,238,756,023 5,417,809,684 5,677,974,293
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NON-CURRENT ASSETS:
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Property, plant and equipment 2,883,847 20,158,989 26,153,242 68,076,487 72,321,711
Intangible assets 21,000,000 24,866,667 22,933,335 22,000,001 21,573,291
Long term loans, advances and deposits 1,407,934 5,879,057 1,925,305 2,685,116 4,527,628
Long term investment -
advance against equity - 3,071,667 - - -
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CURRENT ASSETS:
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Short term investments - 52,119,900 66,018,540 1,038,133,637 708,110,076
trade debts - unsecured,
considers goods 41,433,918 477,033,287 1,087,641,912 1,914,577,787 1,982,717,833
Loans, advances, prepayments,
and other receivables 6,061,613 10,156,482 11,659,082 613,160,050 2,003,902,349
Advance tax 3,683,054 43,741,784 40,818,648 79,169,928 146,712,990
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FINANCIAL RATIOS 2004 2005 2006 2007 2008
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EARNING RATIOS
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ROA 12.12% 9.63% 11.80% 7.44% 10.99%
ROE 40.27% 42.28% 50.81% 13.00% 19.02%
PAT/Revenues 28.11% 40.55% 53.29% 54.85% 55.11%
PBT/Revenues 46.24% 47.97% 61.52% 63.54% 65.35%
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LIQUITY RATIOS
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Current Ratio 1.32 1.23 1.54 2.30 2.33
Revenue / Expenses 1.83 1.91 2.44 2.31 2.18
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DEBT MANAGEMENT RATIOS
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Debt to Equity 2.32 3.39 3.30 2.83 2.86
Debt to Assets 0.7 0.77 0.77 0.43 0.42
Interest coverage ratio 57.2 10.98 20.6 33.88 10.42
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MARKET RATIOS
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Earning/Share 6.71 10.58 19.15 19.02 17.48
Book value/Share 16.67 24.19 37.68 130.13 91.9
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