PACRA Maintains Broker Entity Rating of Aba Ali Habib Securities (Private) Limited

Lahore, March 15, 2023 (PPI-OT): Aba Ali Habib Securities (Pvt.) Limited (“AAH”) is primarily engaged in the provision of equity brokerage services while diversity exist in the form of commodity brokerage, MTS, MFS and IPO distribution. AAH enjoys a good market share whereas the clientele is fairly diversified between institutions/corporates and HNWI’s/Retail.

The business model of equity brokers is inherently prone to market volatility. Rising interest rates, political uncertainty, and increasing inflationary pressure during CY22 have impeded investors’ sentiments, adversely impacting volumetric activity at PSX. Consequently, the traded volumes of AAH also suffered, resulting in a decline of commission on equity brokerage by ~35% during 1HFY23 as compared to 1HFY22.

AAH earned revenue from equity brokerage of ~PKR 34mln in the 1HFY23 (1HFY22: ~PKR 52mln) whereas for FY22 it stood at ~PKR 51mln (FY21: ~PKR 101mln). On the other hand, AAH earned mark-up on MTS/MFS amounting to ~PKR 39mln in addition to dividend income of ~PKR 17mln during 1HFY23 providing the necessary support to remain in profits.

Moreover, AAH also realized a capital gain of ~PKR 45mln from the sale of securities. The profit after tax has declined when compared with 1HFY22 to stand at ~PKR 56mln for 1HFY23 mainly due to a fall in re-measurement gains of short-term investments. AAH has a strong equity base of ~PKR 1,024mln at End-Dec’22 (Jun’22: ~PKR 968mln) which provides a cushion against unexpected shocks.

The rating takes comfort from a low leveraged capital structure. AAH actively manages its investment book whereby the funds are strategically moved between equity and fixed income avenues based on market expectations.

The ongoing volatility of equity market may impact the commission revenue going forward. AAH provides sound client services whereas a strong internal control environment supported by outsourced internal audit provides comfort to ratings. However, the extent of policies may be enhanced further with the addition of more detailed guidelines.

The assigned rating takes into account a sound business acumen of the sponsor family. The governance framework may be enhanced further with the induction of certified independent directors. In the near future, once clarity emerges on the economic and political front, the management has plans to enhance the institutional clientele. The improvement of technological infrastructure and geographical diversification is also under consideration.

Going forward, improvement in core income, sustainability of market share and profitability and materialization of planned business strategies remains critical. Meanwhile, upholding strong internal controls, sound governance structure, retention of key management personnel and diligent monitoring of risks is important.

For more information, contact:
Analyst,
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore, Pakistan
Tel: +92-42-5869504-6
Fax: +92-42-5830425
Email: hammad.rashid@pacra.com
Website: www.pacra.com

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