By BR Research
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, 2024, CYAN has a total of 61.559 million shares outstanding which are held by 1739 shareholders. Associated companies, undertakings and related parties have the majority stake of 66.97 percent in CYAN followed by local general public holding 29.09 percent of its shares. Directors, CEO, their spouse and minor children account for 3.04 percent shares of the company. The remaining shares are held by other categories of shareholders.
Financial Performance (2019-24)
CYAN’s ROI dipped thrice over the period under consideration i.e. in 2020, 2023 and 2024. 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 2020 only to fall back for the next two years with net loss recorded in 2022. In 2023 and 2024, 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 which clocked in at Rs.99.841 million. 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 the clarity on the economic front after Pakistan entered into an 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 from related parties as well as higher profit on bank deposits. The company incurred deficit of Rs.2.298 million on the 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 to clock in at Rs. 57.247 million. This was on account of lower dividend income as CYAN had 97 percent exposure in equity in 2020. The company recorded a tremendous 230.32 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 the 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 and 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 264.79 percent year-on-year. This translated into EPS of Rs.5.80 in 2020.
In 2021, CYAN registered staggering a 65.58 percent year-on-year rise in its return on investments which clocked in at Rs.94.79 million. 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 the re-measurement of its 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 to clock in at Rs.153.948 million. 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 of Rs.127.659 million 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 the re-measurement of its investments 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 to clock in at Rs.135.078 million. 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 the 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.
In 2024, CYAN’s return on investment eroded by 15.95 percent to clock in at Rs.113.531 million. This was due to selling of high yielding stocks during the year. However, this was offset by 90 percent growth recorded in gain on the sale of its investments. Other income dipped by 30.13 percent in 2024 due to lower profit on bank deposits on account of monetary easing. Surplus recorded on the re-measurement of investments mounted by 140.48 percent in 2024. This was mainly driven by CYAN’s holdings in banking sector which was benefitted due to the removal of ADR based taxation and E&P sector which flourished on account of stronger cash flows as collection rates significantly improved and also because of the permission granted by the government to sell 35 percent of their gas production directly to the private consumers. CYAN’s investment in Systems Limited also proved to be the key value driver on account of its dollarized revenue model. CYAN’s gross income mounted by 78.36 percent in 2024 to clock in at Rs.747.096 million. Operating expense dipped by 0.66 percent in 2024 due to lower payroll expense. During the year, the company availed no financing facility and hence no finance cost was incurred. CYAN posted the highest ever net profit of Rs.557.684 million in 2024, up 71.80 percent year-on-year. This translated into EPS of Rs.9.06 in 2024.
Recent Performance (1QCY25)
During the first quarter of CY25, CYAN posted year-on-year decline of 22.90 percent in its return on investments which clocked in at Rs.24.54 million. This came on the back of lower dividend income recognized during 1QCY25. The company also recorded loss of Rs.10.625 million on the sale of its investments in 1QCY25. This was against gain of Rs.6.231 million recorded on the sale of investments in 1QCY24. Lower return on investment and loss incurred on the sale of investment was offset by unrealized gain of Rs.16.22 million recorded on the re-measurement of investments in 1QCY25 as against unrealized loss of Rs.19.96 million recorded during the same period last year. This resulted in 65.59 percent growth recorded in CYAN’s total income which clocked in at Rs.30.47 million in 1QCY25. Operating expense dwindled by 9 percent during the period under review. No use of external financing lines resulted in no finance cost incurred in 1QCY25. Provisioning done for Sindh Workers’ Welfare Fund resulted in other expense of Rs.0.485 million in 1QCY25. CYAN recorded net profit of Rs.15.167 million in 1QCY25, up 71 percent year-on-year. This translated into EPS of Rs.0.25 in 1QCY25 versus EPS of Rs.0.14 recorded in 1QCY24.
Future Outlook
With political dust almost settled, the economy seems to be on the right track. This has also provided noticeable stability to the equity market. Reduction in discount rate, inflation and commodity prices has also provided considerable support to the economy. The next steps for the government should be to foster stronger fiscal discipline, encourage market based pricing of public goods and promote deregulation across industries besides focusing on the privatization of key SOEs. These steps if implemented well will enhance the value of CYAN’s holdings.