MCB-Arif Habib Savings and Investments Limited: PACRA Rating Report

Transcription

1. The Pakistan Credit Rating Agency Limited Rating Report Report Contents MCB-Arif Habib Savings and Investments Limited (Entity) Dissemination Date 19-Nov-2018 28-Dec-2017 30-Jun-2017 11-Mar-2016 12-Mar-2015 Long Term Rating AAAAAAAAAA- Rating History Short Term Rating A1+ A1+ A1+ A1+ A1+ 1. Rating Analysis 2. Financial Information 3. Rating Scale 4. Regulatory and Supplementary Disclosure Outlook Stable Stable Stable Stable Stable Action Maintain Maintain Maintain Maintain Initial Rating Watch - Rating Rationale and Key Rating Drivers The ratings reflect the company's strong position in the domestic AMC industry augmented by its growing retail base, strong sponsor support and franchise value, sound organizational structure and robust technological infrastructure. The company's wellstructured decision- making process is supported by continuous improvement in the overall operating framework. This coupled with diversified fund slate has helped the company to sustain its market share, despite challenging circumstances in the industry due to lackluster stock market performance. The company has inducted professional and experienced management staff. The company has also formed a corporate sales team to target corporate provident/endowment funds, cash management, and shortterm investments. The ratings incorporate the company's association with two prominent business conglomerates of Pakistan, Nishat & Arif Habib Groups. The ratings are dependent upon the company's ability to sustain its market share. Meanwhile, the stability of the management team and maintaining strong fund performance is important. Any deterioration in the company's liquidity profile and/or reduction in AUMs leading to lower revenues, in turn, profitability, will have negative rating implications. Disclosure Powered by TCPDF (www.tcpdf.org) Name of Rated Entity MCB-Arif Habib Savings and Investments Limited(Entity) Type of Relationship Solicited Purpose of the Rating Entity Rating Applicable Criteria Methodology | Corporate Ratings(Jun-18),Methodology | AMC (Jun-18) Related Research Sector Study | Asset Management(Jun-18) Rating Analysts Farhan Ali | farhan.ali@pacra.com | +92-42-35869504 Shahzaib Khalid | shahzaib.khalid@pacra.com | +92-42-35869504
2. Non Banking Financial Institutes The Pakistan Credit Rating Agency Limited PROFILE Legal Structure MCB-Arif Habib Savings and Investments Limited (MCBAH) is listed on the Pakistan Stock Exchange. The Company is licensed by the SECP to operate as financial advisor, asset manager, and pension funds manager. Background The Company was incorporated in August 2000. During June 2011, MCB Asset Management Company was merged into Arif Habib Investments. The objective was to achieve business synergies. After the merger, the name of the merged entity was changed to "MCB Arif Habib Savings and Investments Limited", The company has an asset manager rating of “AM2++” by PACRA. Operations The company manages fifteen open-end mutual funds and two voluntary pension schemes. The company also manages an SMA account with a total worth of ~PKR 32bln at end Jun18. OWNERSHIP Ownership Structure The major shareholders of the company include a) MCB Bank Limited (51%) and b) Arif Habib Corporation (30%). The remaining shareholding belongs to the general public (9%), banking & other financial institutions (4%) and others (6%). Business Acumen MCB Bank Limited, the fifth largest bank in Pakistan in terms of asset size, is majority owned by Nishat group, a distinguished business conglomerate of Pakistan. Arif Habib Corporation is the holding company for Arif Habib Group, a renowned group with a diverse portfolio of investments and a strong presence in the financial sector. Financial Strength The sponsors have very strong financial standing. The equity size of MCB Bank Limited is ~PKR153bln as of Dec 17, whereas, equity size for Arif Habib Corporation stood at ~PKR 30.5bln as of June 18. Stability MCB Bank has a credit rating of AAA/A1+ as of June 2018. GOVERNANCE Board Structure The Company has an eight members BoD. The board comprises two representatives from MCB Bank, two representatives from Arif Habib Group, three independent directors and the CEO. Members’ Profile Mian Muhammad Mansha, Chairman of the board, was presented with Pakistan’s civil award, Sitara-e-Imtiaz, for his contributions to industrial development, and is one of the leading businessmen of the country. Mr. Nasim Beg (CA), a representative of Arif Habib Group, has over forty years of professional experience. Board Effectiveness The board actively provides guidance to the company and has set up audit and HR & remuneration committees. Financial Transparency The company’s external auditor is “KPMG Taseer, Hadi & Co.”.The auditors issued an unmodified opinion on the financial statements for FY18. MANAGEMENT The company has instituted a hierarchical organizational structure for smooth functioning. The company operates through nine main departments, with well-defined functions and segregation of duties. Management Team Mr. Saqib Saleem (CA), the current CEO of the company, posses ~20 years of experience. Mr.Muhammad Asim (MBA, CFA) possessing 14 years of experience, is the company CIO. All other members of the senior management are also highly qualified and well experienced. Effectiveness The company has streamlined its investment decision-making process. Separate Investment Committee (IC) meetings are held for equity and fixed income funds. The proceedings of the meetings are documented in detail in IC minutes. Control Environment The company has developed an in-house unit holder accounting system, which provides live information to fund managers facilitating investment decision making. The company utilizes a dedicated client relationship management (CRM) application for customer services operations. The CRM is also used to monitor the customer services department. Organizational Structure BUSINESS RISK Industry Dynamics During FY18, the Asset Management industry experienced a meager growth of ~0.4%, as KSE-100 posted a negative return of 10% during the period. Foreign investor's interest seemed low as they kept selling local equities since MSCI rebalancing in the previous year. Relative Position As of August 2018, MCBAH is the 6th largest asset management company in the country having a market share of 7.7%, with AUMs of ~PKR 48bln. Revenue During FY18, the company's fee-based income grew by 8% to ~PKR 723mln (FY17: ~PKR 671mln), constituting 97% of the total income. The majority of the revenue (96%) is derived from AUMs, while remaining is mainly advisory and processing income. The company also generates income on the investment portfolio. Profitability The net margin of the company declined (FY18:17%, FY17:30%), primarily due to loss of investments in FY18. Sustainability The company has formed a corporate sales team to target corporate provident/endowment funds, cash management, and short-term investments. Going forward, the company plans to form a subsidiary offering Sharia-compliant funds, exclusively. FINANCIAL RISK Risk Profile The liquidity risk of the company primarily emanates from redemption calls by the client and credit risk associated with investments made in the money market. This can force the company to borrow to meet obligations. At the end of June 18, liquid assets comprised 51% of the total asset base of the company (June 17: 55%). In case of any liquidity risk arising, the company has a running finance facility of PKR 500mln from MCB Bank. The Company is also exposed to market risk due to significant investments made in its own funds. The market value of these funds forms 73% of equity at end June 18 (June 17: 77%). The investments are classified as long-term (~PKR 521mln ) and short-term (~PKR 618mln). All investments have been deployed into the company's own funds. Coverages The company's free cash flows from operations (FCFO) improved to ~PKR 157mln as compared to FY17: ~PKR 113mln. However, remained on the lower side as compared to FY16: ~PKR 200mln. Capitalization The company has a debt-free capital structure and does not intend to add any debt. Rating Report MCB Arif Habib Savings and Investment Limited Nov-18 www.PACRA.com
3. The Pakistan Credit Rating Agency Limited MCB-ARIF HABIB SAVINGS & INVESTMENTS LIMITED BALANCE SHEET A. EARNING ASSETS 1. Deposits with Banks 2. Placements under Reverse REPO 3. Investments a) Own Funds b) Others PKR Mln 30-Jun-18 30-Jun-17 30-Jun-16 Annual Annual Annual 19 19 38 1,139 1,216 1,214 1,139 1,159 1,216 1,235 1,214 1,252 B. NON-EARNING ASSETS 1. Cash and Bank Balances 2. Balance Due from Open-End Funds Under Management 3. Advances, Receivables, Deposits and Other Assets 4. Fixed Assets Non-Earning Assets 0 511 178 401 1,090 0 484 169 375 1,029 4 486 93 340 923 C. TOTAL ASSETS 2,249 2,264 2,174 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 626 55 681 635 49 684 577 47 625 720 720 720 848 860 829 Total Earning Assets D. BORROWINGS Long-term 1. Banks and Other Financial Institutions 2. Listed TFCs 2. Sponsors/Others Short-term 1. Current maturity of long-term borrowing 2. Short-term finances Total Borrowings E. OTHER LIABILITIES (Non-Interest Bearing) 1. Accrued Expenses & Other Liabilities 2. Tax Deferred Payable tax Total Other Liabilities F. EQUITY 1. Share Capital 2. Reserves: a. Reserve for Issue of Bonus Shares a. Capital Reserve b. Revenue Reserve c. Accumulated Profit Pure Equity 3. Surplus/(Deficit) on Reveluation of Fixed Assets 4. Unrealized gain/(loss) on Revaluation of Investments Total Equity G. TOTAL LIABILITIES & EQUITY 848 860 829 1,568 1,580 1,549 0 0 0 0 0 0 1,568 1,580 1,549 2,249 2,264 2,174
4. The Pakistan Credit Rating Agency Limited MCB-ARIF HABIB SAVINGS & INVESTMENTS LIMITED INCOME STATEMENT 1. Fee-Based Income a. Remuneration from Open-end Funds b. Commission from Open-end Funds c. Advisory Fee/Others 30-Jun-18 30-Jun-17 30-Jun-16 Annual Annual Annual 670 21 32 723 620 7 44 671 662 4 42 707 1 0 1 1 6 7 2 23 25 1 (5) (17) 26 89 1 2 25 1 (22) 40 116 15 28 22 743 808 782 7. Financial Charges 278 267 (545) 198 0 214 308 (523) 286 1 167 265 (432) 350 0 8. Pre-Tax Profit 197 285 350 9. Taxes 72 84 111 10. Net Income 125 201 239 11. Unapprpopriated Profit / (Loss) Brought Forward 203 235 214 328 437 453 (126) (234) (234) (0) (126) (234) 17 (217) 201 203 235 2. Interest / Mark-up Income a. Bank Deposits & Placements c. TFCs & Other Investments 3 4 Other Investment Income a. Dividend Income b. Gain on Sale of Investments c. Unrealized Gains/(loss) on Investments d. Others Other Income/loss 5. Total Income 6. Operating Expenses a. Personnel Expenses b. Other Operating Expenses 12. Adjustments (incl. dep. on revaluation) 12. Adjustments - Dep. on Revaluation 13. Available for Appropriations 14. Appropriations a. Statutory Reserve b. Capital Reserve c. Revenue Reserve a. Cash Dividend a. Issue of Bonus Shares d. Others 15. Unappropriated Profit Carried Forward
5. The Pakistan Credit Rating Agency Limited MCB-ARIF HABIB SAVINGS & INVESTMENTS LIMITED RATIO ANALYSIS 30-Jun-18 30-Jun-17 30-Jun-16 Annual Annual Annual A. PERFORMANCE 1. ROE 2. ROA 3. Fee Income / Total Revenue 4. Personnel Expenses-to-Total Revenue 5. Cost-to-Total Revenue 5. Profit from Associates / Total Revenue 6. Taxes / Pre-Tax Profit 8.0% 5.5% 97.3% 37.5% 73.4% 0.0% 36.7% 12.7% 9.1% 83.0% 26.5% 64.7% 0.0% 29.4% 90.4% 21.3% 55.2% 0.0% 31.6% 69.7% 72.7% 69.8% 77.0% 71.3% 78.3% 51.5% 54.6% 57.8% -0.7% -0.8% -6.4% 4.1% 2.0% 0.2% - B. CAPITAL STUCTURE 1. Pure Equity / Total Assets 2. Investments / Equity C. LIQUIDITY 1. Liquid Assets / Total Assets Liquid Assets = Bank Deposits+Reverse Repos+Short-Term Investments D. GROWTH 1. Total Assets 2. Pure Equity 3. Total Investments
6. Rating Scale Credit Rating Scale & Definitions Credit rating reflects forward-looking opinion on credit worthiness of underlying entity or instrument; more specifically it covers relative ability to honor financial obligations. The primary factor being captured on the rating scale is relative likelihood of default. Short Term Ratings Long Term Ratings AAA AA+ AA AA- Highest credit quality. Lowest expectation of credit risk. Indicate exceptionally strong capacity for timely payment of financial commitments Very high credit quality. Very low expectation of credit risk. Indicate very strong capacity for timely payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events. A1+ The highest capacity for timely repayment. A1 A strong capacity for timely repayment. A2 A satisfactory capacity for timely repayment. This may be susceptible to adverse changes in business, economic, or financial conditions. A3 A+ A A- High credit quality. Low expectation of credit risk. The capacity for timely payment of financial commitments is considered strong. This capacity may, nevertheless, be vulnerable to changes in circumstances or in economic conditions. B C BBB+ BBB BBB- B+ B B- CCC CC C An inadequate capacity to ensure timely repayment. Good credit quality. Currently a low expectation of credit risk. The capacity for timely payment of financial commitments is considered adequate, but adverse changes in circumstances and in economic conditions are more likely to impair this capacity. Moderate risk. Possibility of credit risk developing. There is a possibility of credit risk developing, particularly as a result of adverse economic or business changes over time; however, business or financial alternatives may be available to allow financial commitments to be met. High credit risk. A limited margin of safety remains against credit risk. Financial commitments are currently being met; however, capacity for continued payment is contingent upon a sustained, favorable business and economic environment. Short Term Ratings A1+ Very high credit risk. Substantial credit risk “CCC” Default is a real possibility. Capacity for meeting financial commitments is solely reliant upon sustained, favorable business or economic developments. “CC” Rating indicates that default of some kind appears probable. “C” Ratings signal imminent default. D Obligations are currently in default. Outlook (S table, Positive, Negative, Developing) Indicates the potential and direction of a rating over the intermediate term in response to trends in economic and/or fundamental business/financial conditions. It is not necessarily a precursor to a rating change. ‘Stable’ outlook means a rating is not likely to change. ‘Positive’ means it may be raised. ‘Negative’ means it may be lowered. Where the trends have conflicting elements, the outlook may be described as ‘Developing’. Rating Watch Alerts to the possibility of a rating change subsequent to, or in anticipation of, a) some material identifiable event and/or b) deviation from expected trend. But it does not mean that a rating change is inevitable. A watch should be resolved within foreseeable future, but may continue if underlying circumstances are not settled. Rating Watch may accompany Outlook of the respective opinion. A1 A2 A3 B C AAA AA+ AA AAA+ Long Term Ratings BB+ BB BB- An adequate capacity for timely repayment. Such capacity is susceptible to adverse changes in business, economic, or financial conditions. The capacity for timely repayment is more susceptible to adverse changes in business, economic, or financial conditions. S uspension It is not possible to update an opinion due to lack of requisite information. Opinion should be resumed in foreseeable future. However, if this does not happen within six (6) months, the rating should be considered withdrawn. A ABBB+ BBB BBBBB+ BB BBB+ B BCCC CC C Withdrawn A rating is withdrawn on a) termination of rating mandate, b) cessation of underlying entity, c) the debt instrument is redeemed, d) the rating remains suspended for six months, e) the entity/issuer defaults., or/and f) PACRA finds it impractical to surveill the opinion due to lack of requisite information. Harmonization A change in rating due to revision in applicable methodology or underlying scale. Disclaimer: PACRA's ratings are an assessment of the credit standing of entities/issue in Pakistan. They do not take into account the potential transfer / convertibility risk that may exist for foreign currency creditors. PACRA's opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security’s market price or suitability for a particular investor. June 2018 www.pacra.com
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