Verdict: First Elite Capital Modaraba (FECM) moved back into loss in the audited year ended 30 June 2026. The headline deterioration was not caused by a collapse in its main financing line: income from ijarah financing actually rose 13.0%. The decisive swing came from the near-disappearance of the previous year’s Rs11.10 million investment-property fair-value gain, combined with faster growth in ijarah depreciation and administrative costs. The result was a Rs7.03 million loss, versus a Rs4.70 million profit in FY2025, and no distribution for certificate holders.
That makes FY2026 a mixed result rather than a simple operating contraction. Excluding the investment-property revaluation line, reported income increased about 12.9% to Rs46.52 million. Yet ijarah income after the directly associated depreciation was almost unchanged at roughly Rs10.72 million, while overheads and market-value losses absorbed more of the available spread. Cash generation and liquidity improved, but the earnings base remains small and exposed to accounting revaluations and investment-market movements.
Results at a glance
The figures below are from FECM’s audited standalone Modaraba financial statements for the year ended 30 June 2026. Amounts are in Pakistani rupees.
- Total income: Rs46.79 million, down 10.6% from Rs52.32 million.
- Ijarah financing income: Rs41.99 million, up 13.0% from Rs37.15 million.
- Total expenses: Rs52.73 million, up 15.2% from Rs45.78 million.
- Loss after levy and tax: Rs7.03 million, compared with profit of Rs4.70 million.
- Loss per certificate: Rs0.62, versus earnings of Rs0.41.
- Net cash generated from operating activities: Rs15.13 million, up from Rs2.67 million.
- Total assets: Rs236.36 million, up 1.7%; net assets: Rs136.82 million, broadly flat.
- Cash and bank balances: Rs23.52 million, up from Rs8.27 million.
- Distribution: nil, unchanged from FY2025.
AlphaGen model scores
These are AlphaGen model outputs, not figures reported by FECM and not investment recommendations.
- Alpha QoQ Score: 34.64
- TTM Performance Score: 22.42
- 3Y Business Perf Score: 25.66
- Sector Leadership Score: 37.20
What improved
The main financing line grew, and underlying income was stronger
Ijarah financing remained the engine of the Modaraba. Income from that line increased by Rs4.84 million to Rs41.99 million. Murabahah income rose to Rs0.20 million from only Rs0.02 million, while musharakah added Rs0.92 million after contributing nothing in the comparative year. Together, the three financing lines produced Rs43.11 million, which the auditor identified as the key area of income-recognition audit work.
The reported decline in total income therefore needs a careful base comparison. FY2025 included an Rs11.10 million fair-value gain on investment property; FY2026 included only Rs0.27 million. Removing that line from both years, income rose from Rs41.22 million to Rs46.52 million. That calculation does not turn the loss into a profit, but it shows that the recurring-looking financing and other income pool was better than the headline 10.6% decline suggests.
Management did not provide a volume, yield or pricing bridge for the increase in ijarah income. The statements show a larger year-end ijarah asset base—Rs122.17 million versus Rs113.69 million—but they do not isolate how much of the income change came from new assets, utilization, contract rates or timing. The defensible conclusion is therefore limited to the verified arithmetic: gross ijarah income grew alongside a larger leased-asset base.
Liquidity and operating cash flow strengthened
Cash and bank balances increased by Rs15.25 million to Rs23.52 million. Net operating cash flow rose to Rs15.13 million from Rs2.67 million, while the Modaraba reported no financing cash flows. On the face of the balance sheet, there is no interest-bearing borrowing; liabilities are mainly security deposits, accrued liabilities, unclaimed distributions, tax and employee obligations.
The cash-flow improvement should not be read as conventional earnings conversion. For this financing business, operating cash flow includes Rs71.13 million of purchases and Rs31.81 million of transfers of ijarah assets, as well as Rs23.80 million of investment purchases and Rs41.05 million of investment sale proceeds. Those portfolio movements helped determine the year-end cash balance. Even with that caveat, the absence of external financing and the higher cash buffer reduce immediate liquidity pressure.
The balance sheet remained resilient
Total assets rose 1.7% to Rs236.36 million, while net assets were almost unchanged at Rs136.82 million. Net assets represented about 57.9% of total assets. Current assets of Rs43.88 million covered current liabilities 1.51 times, although that ratio weakened from 1.73 times because current assets fell and current liabilities increased.
Ijarah assets accounted for 51.7% of total assets and investment property for another 27.8%. This is a concentrated balance sheet, but one backed by substantial certificate-holder capital rather than leverage. The auditor issued an unmodified opinion and did not identify a material uncertainty related to going concern.
What weakened / needs attention
The prior-year fair-value tailwind disappeared
The single biggest year-on-year bridge was the investment-property revaluation. The gain fell by Rs10.83 million, from Rs11.10 million to Rs0.27 million. That change alone was close to the entire Rs11.72 million swing from profit to loss. FY2025 therefore set a demanding comparison that was not representative of recurring cash income.
This distinction matters because FECM’s earnings history is visibly cyclical. The company’s six-year summary reports after-tax results of Rs4.26 million in FY2021, losses of Rs7.22 million and Rs7.06 million in FY2022 and FY2023, profit of Rs23.64 million in FY2024, profit of Rs4.69 million in FY2025, and a loss of Rs7.03 million in FY2026. The sequence argues against treating any single year’s revaluation-supported profit as a stable run rate.
Higher ijarah income did not widen the direct spread
Depreciation on assets leased under ijarah contracts rose 18.5% to Rs31.28 million, faster than the 13.0% increase in ijarah income. Subtracting that depreciation from ijarah income leaves Rs10.72 million in FY2026, virtually unchanged from Rs10.76 million in FY2025. This is an accounting approximation rather than a disclosed segment profit measure, but it demonstrates why stronger gross rental income did not translate into a stronger bottom line.
Administrative and general expenses increased 5.6% to Rs20.25 million. The notes show lower salaries and benefits, but higher legal and professional charges, fees and subscriptions, and depreciation within overheads. In addition, FECM recorded a Rs0.65 million fair-value loss on investments at fair value through profit or loss and a Rs0.54 million loss on disposal of biological assets. These were modest individually, but material relative to the Modaraba’s narrow earnings base.
Investment returns fell and portfolio marks remained volatile
Return on investments declined 31.4% to Rs2.20 million. It comprised roughly Rs1.22 million of dividend income and Rs0.97 million of gains on sale of investments. Listed investments held at fair value through profit or loss ended the year with a carrying value of Rs6.17 million against cost of Rs6.82 million, which explains the Rs0.65 million loss recognized in earnings.
The separate fair-value reserve improved through other comprehensive income: short-term investments produced an Rs2.62 million gain outside profit or loss. Including pension remeasurement, total comprehensive loss was Rs3.52 million, smaller than the Rs7.03 million statutory loss but still a reversal from FY2025’s Rs12.57 million comprehensive income. Readers should distinguish those reserve movements from profit available for distribution.
Legacy murabahah exposure remains heavily impaired
The notes disclose gross murabahah financing exposure of about Rs54.78 million, almost entirely offset by a provision of Rs54.76 million, leaving only Rs16,403 on the balance sheet. That old exposure is not currently inflating net assets, but it remains a reminder of historical credit risk and recovery uncertainty. Any future recovery could help income; absent cash collection, it should not be assumed.
Cash flow, capital and distribution
The Modaraba bought Rs71.13 million of ijarah assets during the year and recorded Rs31.81 million of transfers. The closing ijarah asset balance still rose 7.5% to Rs122.17 million. This shows continued deployment into the core book, but the near-flat income-less-depreciation calculation means investors need evidence that future additions can produce a better economic spread, not merely higher gross income.
There was no cash distribution, bonus certificate, rights issue or other entitlement for FY2026. Given the statutory loss, retaining liquidity is understandable. Net assets per the audited balance sheet were Rs136.82 million, while the core capital-and-reserves subtotal before revaluation and investment reserves was Rs136.02 million. Those presentations reconcile once the separate revaluation surplus and FVOCI reserve are included.
What to monitor next
- Ijarah yield versus depreciation: the critical operating test is whether income begins to grow faster than the depreciation attached to the leased-asset base. A disclosed portfolio bridge—new assets, average balances, utilization and contract yields—would make that assessment much stronger.
- Recurring income quality: the sharp comparison effect from property revaluation should fade, but investment-property and securities marks can still move reported earnings. Separate financing income from fair-value gains and losses.
- Cost discipline: administrative expenses already exceed the direct ijarah income-after-depreciation approximation. Legal, professional and subscription costs deserve attention relative to the small revenue base.
- Liquidity deployment: higher cash is positive, but returns will depend on how effectively it is redeployed without repeating legacy credit problems.
- Murabahah recoveries and legal progress: the gross exposure is almost fully provided. Any recovery should be evaluated only when supported by cash receipts or enforceable outcomes.
- Distribution capacity: a return to sustainable profit, rather than a one-off revaluation gain, is the key condition for resuming payouts.
Bottom line
FY2026 exposed the fragility of FECM’s recent profitability. The core financing pool grew, liquidity improved and the balance sheet remained debt-free, but the direct ijarah spread was flat and recurring overheads were too large for the available income. The loss was magnified by the disappearance of FY2025’s property revaluation gain, yet it cannot be dismissed as a purely accounting event: depreciation, administrative costs and investment marks also weakened the result.
The next credible sign of improvement would be a wider ijarah income-to-depreciation spread accompanied by controlled overheads and less reliance on fair-value gains. Until then, the strong capital base and higher cash provide resilience, but they do not by themselves establish durable profitability.
Primary sources
Pakistan Stock Exchange: FECM company announcements and financials.
Pakistan Stock Exchange: FECM audited annual report for the year ended 30 June 2026.
Pakistan Stock Exchange: FECM financial-results filing dated 25 September 2026.