Cyan Limited (PSX: CYAN) was incorporated in Pakistan as a public limited company in 1960. It is a subsidiary of Dawood Corporation (Private) Limited. The principal activity of the company is making equity investments in companies with high growth potential.
Pattern of Shareholding
As of December 31, 2022, CYAN has a total of 61.559 million shares outstanding which are held by 1735 shareholders. Dawood Corporation (Private) limited has the majority stake of 64.7 percent in CYAN followed by local general public holding 29.28 percent of its shares. Directors, CEO, their spouse and minor children account for 3.04 percent shares of CYAN. The remaining shares are held by other categories of shareholders.
Financial Performance (2019-23)
Except for a dip in 2020 and 2023, CYAN’s return on investments has been multiplying over the period under consideration. The company posted gain on sale of its investments in all the years under consideration except in 2022. CYAN’s bottomline recovered from net loss in 2019 and expanded until 2021 only to fall back for the next two years and post net loss in 2022. In 2023, CYAN registered net profit. The detailed performance review of the period under consideration is given below.
In 2019, CYAN registered 3.04 percent year-on-year growth in its return on investments. During the year, 92 percent of the company’s investments pertained to public equity while the remaining 8 percent were vested in mutual funds and government securities. This was because the company had clarity on the economic front after Pakistan entered into the IMF program. During the year, CYAN also realized capital gain of Rs.137.59 million on the sale of its investments, down 39.85 percent year-on-year. Other income grew by 26.35 percent year-on-year in 2019 on account of higher advisory income related parties as well as higher profit on bank deposits. The company incurred deficit of Rs.2.298 million on re-measurement of investments at FVTPL versus deficit of Rs.419.717 million incurred during the last year. On cumulative basis, the company posted gross income of Rs.250.829 million in 2019 versus gross loss of Rs.81.639 million in 2018. Operating expense mounted by 26 percent year-on-year in 2019 on account of higher payroll expense. Despite monetary tightening, finance cost tumbled by 21.96 percent in 2019 on the back of lower short-term borrowings. CYAN recorded net profit of Rs.97.94 million in 2019 with EPS of Rs.1.59 as against net loss of Rs.218.086 million in 2018 with loss per share of Rs.3.72.
CYAN’s return on investments posted a drastic 42.66 percent year-on-year decline in 2020. This was on account of lower dividend income as CYAN had 97 percent exposure in equity in 2020. The company recorded a tremendous 230 percent year-on-year rise in gain on sale of investments in 2020. Conversely, other income fell by 9.59 percent in 2020 due to lower profit on bank deposits and lower gain on sale of fixed assets during the year. CYAN recorded surplus of Rs.230.301 million on re-measurement of investments at FVTPL. This resulted in gross income of Rs.756.232 million in 2020, up 201.49 percent year-on-year. Operating expense surged by 69.24 percent in 2020 due to higher payroll expense followed by elevated brokerage and commission charges incurred during the year. Finance cost escalated by 268.02 percent year-on-year in 2020 due to higher short-term borrowings. Net profit clocked in at Rs.357.282 million in 2020, up 265 percent year-on-year. This translated into EPS of Rs.5.8 in 2020.
In 2021, CYAN registered staggering 65.58 percent year-on-year rise in its return on investments. On the back of hawkish monetary policy stance, the company concentrated its investments in commercial banking segments. Cement, technology, communication, Vanaspati & allied industries and textile composites were the sectors that were benefitted the most as the government announced stimulus packages post COVID-19. Hence, CYAN managed its equity portfolio accordingly in order to maximize returns. Gain on sale of investments also posted 24.57 percent year-on-year growth in 2021. Other income inched up by 1.47 percent in 2021 on the back of slightly higher advisory income. The company recorded deficit of Rs. 243.917 million on re-measurement of investments at FVTPL. As a result, there was 42.95 percent shortfall in the gross income recorded by CYAN in 2021. CYAN’s gross income clocked in at Rs.431.438 million in 2021. Operating & administrative expenses shrank by 23.98 percent in 2021 due to considerably lower payroll expense incurred during the year. Financial charges also plummeted by 23.05 percent in 2021 due to monetary easing. Nonetheless, net profit eroded by 43.07 percent to clock in at Rs.203.393 million in 2021 with EPS of Rs.3.3.
2022 also proved to be a high growth year for CYAN whereby its return on investment multiplied by 62.41 percent. However, unlike previous year, it couldn’t translate into a healthier bottomline as return on investment recorded by CYAN in 2022 was almost wiped off by loss incurred on the sale of investments. This was because the company changed its investment strategy and started investing in high-yielding blue chip stocks and reducing its exposure in high beta scrips. Other income also dropped by 89.55 percent year-on-year in 2022 because of low advisory income from related party and loss on sale of property and equipment incurred during the year. Furthermore, CYAN also registered deficit of Rs.371.415 million on re-measurement of investment at FVTPL. This resulted in gross loss of Rs.343.62 million reported by the company in 2022. The company rationalized its operating expenses by 72.32 percent in 2022. This was done by trimming down its workforce from 18 employees in 2021 to 2 employees in 2022. Financial charges mounted by 115 percent in 2022 on the back of high interest rate and optimizing the leverage position to pivot its investment strategy. This resulted in net loss of Rs.439.010 million in 2022 with loss per share of Rs.7.13.
In 2023, CYAN’s return on investment plummeted by 12.26 percent. The company was still in the process of rationalizing its investment strategy and hence its portfolio was a combination of high growth and high yielding investments. The top scrips comprising of CYAN’s investment included commercial banks, technology, investment companies, oil & gas exploration as well as cement companies. Unlike last year, CYAN posted gain on sale of investment worth Rs.88.22 million in 2023. Other income also grew by 69.17 percent in 2023. After two successive years of recording deficit on re-measurement of investment at FVTPL, CYAN recorded surplus of Rs.193.017 million in 2023. This resulted in gross profit of Rs.418.86 million in 2023. Operating expense continued to dive in 2023. Financial charges also shrank by 88.96 percent in 2023 as the company settled its short-term borrowings during the year. This resulted in net profit of Rs.324.604 million in 2023 with EPS of Rs.5.27.
Future Outlook
With political dust almost settled, the economy seems to be on the right track of negotiating with the IMF for second SBA review. This may provide stability to the equity market. However, the new IMF program will bring along long-term reforms and conditonalities including additional taxes, gas price revisions and adjustments in electricity tariff and fuel prices which may arrest the growth of many industries where CYAN has its stake.
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