Security Investment Bank Limited (PSX: SIBL) was incorporated in Pakistan as a public limited company in 1991. The company is engaged in the business of financial services and investment as a non-banking financial company.

Pattern of Shareholding

As of December 31, 2023, SIBL has a total of 51.434 million shares outstanding which are held by 2079 shareholders. Associated companies, undertakings and related parties have the majority stake of 39.32 percent in the company followed by individuals holding 27.08 percent shares of SIBL. Banks, DFIs and NBFIs account for 3.92 percent shares of the company while public/private companies and corporations hold 2.8 percent shares. The remaining shares are held by other categories of shareholders.

Financial Performance (2019-23)

SIBL’s total income has been fluctuating over the period under consideration. In 2019 and 2020, SIBL’s total income fell, followed by a staggering rebound in 2021. In 2022, SIBL’s total income drastically fell and thenwitnessed sound recovery in 2023. Its bottomline which had been following an inclining trend until 2020 slumped in 2021 and fell into net loss in the subsequent year. In 2023, SIBL’s net profit bounced back to clock in at its highest level. SIBL’s margins showed significant improvement in 2019. In 2020, operating margin radically fell while net margin portrayed sound progress. In 2021, operating margin picked up while net margin tumbled. This was followed by shrinkage of both operating and netmargins in 2022. In 2023, SIBL’s margins progressed and operating margin attained its highest level (see the graph of profitability ratios). The detailed performance review of the period under consideration is given below.

In 2019, SIBL’s total income inched down by 0.1 percent. This was on the back of 19.4 percent contraction in income on financing and 37.6 percent plunge in profit on bank deposits. Return on securities, gain on sale of investments and other income, however, registered improvement in 2019. SIBL didn’t incur any financial charges in 2019 as the company paid off its external financial obligations during the year except for a subordinated loan of Rs.180 million obtained from in sponsors’ directors. Administrative expense ticked up by 3.8 percent in 2019 which was largely on the back of increased salaries followed by elevated fee & subscription charges as well as travelling & conveyance charges. This translated int0 21.8 percent higher operating profit recorded by SIBL in 2019 with OP margin of 56.53 percent versus OP margin of 46.33 percent in 2018. The company also recorded unrealized gain of Rs.13.34 million on re-measurement of investments classified as FVTPL. This pushed up SIBL’s net profit by 129.4 percent to clock in at Rs.39.508 million in 2019 with EPS of Rs.0.768 versus EPS of Rs.0.335 in 2018. NP margin climbed up from 23.5 percent in 2018 to 53.96 percent in 2019.

In 2020, SIBL’s total income slumped by 43.6 percent. This was on the back of curtailed income on financing. During the year, the company’s short-term financing drastically fell as previously SIBL had been providing financing facilities to its related parties including directors and officers which was not in compliance with Non Banking Finance Companies and Notified Entities Regulations, 2008 and hence was discontinued during the year. Profit on deposits with banks and other income also plummeted in 2020. Administrative expense inched up by 0.9 percent in 2020 due to increase in salaries. SIBL’s operating profit recorded 77.8 percent shortfall in 2020 with OP margin falling down to 22.7 percent. During 2020, SIBL recorded unrealized gain of Rs.80.954 million on re-measurement of investments classified as FVTPL, up 507 percent year-on-year. This translated into 95.7 percent improvement in net profit which stood at Rs.77.305 million in 2020 with EPS of Rs.1.503 and NP margin of 187.08 percent – the highest during the period under consideration.

2021 was characterized by 83.4 percent rebound in the total income of SIBL. This was on the back of tremendous 186 percent rise in gain on sale of investments. Return on securities also posted 54 percent escalation in 2021 particularly return on T-bills as the company increased its investment in T-bills during the year. This was despite monetary easing taking place during 2021. Administrative expense mounted by 6.8 percent in 2021 due to elevated payroll expense despite the fact that the number of employees stood at the previous year’s level of 12. Operating profit multiplied by 350.6 percent in 2021 with OP margin of 54.73 percent. SIBL recorded unrealized loss of Rs.12.276 on re-measurement of investment classified as FVTPL. This squeezed its net profit by 67.5 percent in 2021 to clock in at Rs.25.088 million with EPS of Rs.0.488 and NP margin of 33.11 percent.

In 2022, SIBL’s total income registered 34.8 percent year-on-year decline. While all other sources of income performed well during the year, 96.6 percent lower gain on sale of investments took its toll on the total income. Administrative expense slid by 3.6 percent in 2022 due to downtick in payroll expense. SIBL’s operating profit shrank by 60.7 percent in 2022 with its OP margin falling down to 33 percent. SIBL also recorded an even higher unrealized loss of Rs.68.224 million on re-measurement of investment classified as FVTPL in 2022, up 456 percent year-on-year. This translated into net loss of Rs.33.068 million in 2022 with loss per share of Rs.0.643.

In 2023, SIBL’s total income expanded by a staggering 155.7 percent. This was on the back of growth in all the sources of income particularly gain on sale of investments which multiplied by 2680.9 percent in 2023. This was followed by 88.6 percent higher income on financing particularly demand finance on the back of elevated discount rate. Return on securities also posted 67.2 percent rebound particularly government securities as the company enhanced its stake in T-bills and market sukuk during 2023 and also because of higher prevailing discount rate. Dividend income also contributed in driving up return on securities of SIBL. Administrative expense escalated by 15 percent in 2023 due to significantly higher payroll expense while its headcount grew by just one employee to clock in at 13 in 2023. SIBL posted 441.3 percent higher operating profit in 2023 with OP margin of 69.83 percent. Unrealized gain of Rs.33.691million on re-measurement of investment classified as FVTPL further buttressed SIBL’s net profit in 2023 which clocked in at Rs.79.774 million with EPS of Rs.1.551 and NP margin of 63.18 percent.

Future Outlook

Stricter IMF regulations particularly in the energy sector is resulting in energy price escalation which is producing ripple effect on the prices of other commodities and inhibiting inflation from taming down. This can further delay the impending monetary easing cycle. Return on securities, which is the major source of income for SIBL will expand on the back of elevated discount rate. The company is also looking to enhance its car/consumer/corporate portfolio to augment its income on financing. However, with dejected economic growth, high interest rate and low purchasing power of consumers, financing income may not post any significant turnaround in the near future. The company’s endeavor to convert itself into a shariah compliant entity may unlock fresh avenues of investment and boost its returns.