Verdict
First Habib Modaraba ended FY2026 with a much larger financing book but weaker earnings. Net diminishing Musharaka financing expanded by roughly 21%, and total assets crossed PKR 41.7 billion. Yet financing income fell 2.4%, financial charges rose slightly and taxation increased 36%, pulling profit after tax down 17.0% to PKR 747.9 million. The result therefore shows balance-sheet growth without equivalent income growth: asset expansion was real, but the spread between financing yield and funding cost became less productive. (official audited FY2026 result)
Company Name: First Habib Modaraba
Ticker: FHAM
Reporting period: Year ended 30 June 2026
Reporting basis: annual audited financial statements of First Habib Modaraba, approved by the board of its management company on 6 August 2026. The filing presents one Modaraba rather than a consolidated group, and all monetary figures in this analysis are Pakistani rupees unless stated otherwise. (official PSX announcement dated 6 August 2026)
AlphaGen model readings
Alpha QoQ Score: Not available
TTM Performance Score: Not available
3Y Business Perf Score: 70.93
Sector Leadership Score: 50.9846
These four readings are AlphaGen model outputs, not company-reported financial figures. “Not available” means the approved input value was absent; it is not a zero and no substitute value has been inferred.
FY2026 comparison at a glance
- Income from diminishing Musharaka financing: PKR 4.851bn versus PKR 4.972bn, down 2.4%. Interpretation: a larger financing portfolio did not translate into higher annual financing income. (official audited FY2026 result)
- Total income after credit adjustments, administration and other income: PKR 4.772bn versus PKR 4.788bn, down 0.3%. Interpretation: provision reversals cushioned the decline, but did not create growth. (official audited FY2026 result)
- Financial charges: PKR 3.351bn versus PKR 3.322bn, up 0.9%. Interpretation: funding expense remained sticky while asset yields faced pressure. (official audited FY2026 result)
- Profit before tax: PKR 1.217bn versus PKR 1.245bn, down 2.3%. Interpretation: pre-tax profitability was comparatively resilient because credit impairment moved favourably. (official audited FY2026 result)
- Taxation: PKR 468.6m versus PKR 343.8m, up 36.3%. Interpretation: the tax line turned a modest pre-tax decline into a much larger fall in net profit. (official audited FY2026 result)
- Profit after tax: PKR 747.9m versus PKR 901.5m, down 17.0%; earnings per certificate fell to PKR 6.75 from PKR 8.13. (official audited FY2026 result)
- Total assets: PKR 41.727bn versus PKR 34.749bn, up 20.1%. Interpretation: growth was led by financing assets and required substantially more external funding. (official audited FY2026 result)
- Certificate holders’ equity: PKR 6.231bn versus PKR 5.739bn, up 8.6%. Interpretation: equity grew, but more slowly than the balance sheet. (official audited FY2026 result)
What changed in the income statement
The central tension is visible in the top line. Income from diminishing Musharaka financing declined to PKR 4.851 billion even though the year-end net financing portfolio grew substantially. At the nine-month stage, management had already said declining lending rates following State Bank of Pakistan policy-rate reductions were pressuring profitability. That is a management explanation for the yield environment; the full-year filing itself does not disclose an average financing yield or average cost of funds. (official March 2026 interim report)
Diminishing Musharaka is a Shariah-compliant co-ownership arrangement commonly used for vehicles, equipment and other assets. The customer gradually purchases the Modaraba’s share while paying rentals or profit on the outstanding ownership. FHAM finances these assets using certificate deposits, running Musharaka and equity. Its earnings depend on the margin between financing income and funding cost, adjusted for credit losses, operating expense and tax.
Financial charges rose to PKR 3.351 billion from PKR 3.322 billion. Relative to financing income, the charge increased to about 69.1% from 66.8%. This ratio is an AlphaGen calculation from the audited figures, not a reported margin. Economically, it says more of each financing-income rupee was absorbed by fund providers before administration, impairment and tax. (official audited FY2026 result)
The combination can occur when asset yields reprice downward faster than liabilities, when new financing is booked at lower rates, or when the mix of deposits and running Musharaka changes. The filings do not isolate those effects, so it would be inappropriate to attribute the movement to one cause. What is observable is that the financing base expanded, income declined and funding cost did not decline with it.
Credit quality softened the earnings pressure
Credit adjustments were favourable. FY2026 included a PKR 41.5 million reversal against diminishing Musharaka financing, compared with a PKR 124.9 million provision in FY2025. There was also a PKR 2.8 million reversal on instalments receivable and an PKR 11.4 million modification loss. Taken together, the movement in the main financing provision created a positive year-on-year swing of about PKR 166.5 million. (official audited FY2026 result)
The March 2026 report showed gross diminishing Musharaka financing of PKR 37.278 billion and a provision of PKR 972.4 million at that date. It also disclosed a rescheduling agreement with one customer: PKR 6.089 million of an existing instalment provision was transferred to the financing provision, and the modification did not derecognise the asset. This is useful context because a provision reversal does not mean credit risk disappeared; readers still need the final annual notes for ageing, stage migration and non-performing exposure. (official March 2026 interim report)
Pre-tax profit declined only 2.3% because the favourable impairment movement offset much of the spread pressure. This makes credit quality a recurring-versus-non-recurring question. If lower provisions reflect genuinely better collections and collateral performance, the benefit may be durable. If they mainly reflect timing or recoveries that do not repeat, future profit will depend more heavily on restoring financing spreads.
The tax line drove the net-profit decline
Profit before tax and levy was PKR 1.233 billion, down about 3.0%. The separate levy fell to PKR 16.0 million from PKR 25.7 million, leaving profit before taxation of PKR 1.217 billion. Taxation then increased to PKR 468.6 million from PKR 343.8 million. The effective burden against reported pre-tax profit rose to about 38.5% from 27.6%, based on AlphaGen calculations from the filing. (official audited FY2026 result)
The short-form annual result does not provide a tax reconciliation, so the precise reasons for the increase cannot be verified yet. Current versus deferred tax, minimum or final tax interactions and the Modaraba’s income composition may matter. Until the full annual report provides the note, the correct conclusion is narrow: tax explains most of the gap between the 2.3% pre-tax decline and the 17.0% fall in profit after tax.
Fourth-quarter read-through
Subtracting the official nine-month figures from the audited annual result implies fourth-quarter financing income of about PKR 1.293 billion, up 10.4% from the comparable quarter. Implied fourth-quarter profit after tax was about PKR 158.9 million, down 35.3% from roughly PKR 245.6 million a year earlier. These are AlphaGen arithmetic derivations, not separately reported company figures. (annual result and March 2026 interim report)
The quarter therefore appears better at the financing-income line but weaker at the bottom line. Implied fourth-quarter pre-tax profit declined by roughly 10%, while the implied tax charge increased by about 61%. This supports the full-year reading: the late-year revenue run rate improved, but it was not enough to reverse funding, operating and tax pressure.
Balance-sheet expansion and funding
Net diminishing Musharaka financing was PKR 24.665 billion in non-current assets and PKR 12.556 billion in current assets at 30 June 2026, a combined PKR 37.221 billion. The comparable combined balance was PKR 30.804 billion, implying 20.8% growth. Total assets increased by PKR 6.978 billion to PKR 41.727 billion. (official audited FY2026 result)
Funding increased alongside assets. Certificates of investment under Musharaka rose to PKR 22.261 billion from PKR 20.773 billion, while running Musharaka increased to PKR 10.932 billion from PKR 6.295 billion. Together, those two balances grew about 22.6% to PKR 33.193 billion. Cash and bank balances, meanwhile, fell 29.1% to PKR 577.9 million. (official audited FY2026 result)
This is not automatically negative: a financing institution must raise funds to grow earning assets. The risk is asset-liability mismatch. If short-duration or repricing-sensitive funding expands faster than equity, profitability becomes more exposed to deposit pricing and liquidity conditions. Total assets grew 20.1% while certificate holders’ equity grew 8.6%, so the balance sheet became more reliant on external funds.
Cash flow and liquidity
The audited cash-flow statement reported PKR 6.417 billion of net cash used in operating activities, compared with PKR 6.895 billion used in FY2025. The outflow largely reflects financing-book expansion: net deployment into diminishing Musharaka was PKR 6.537 billion. Financing cash flow was supported by large issuance and repayment volumes in certificates of investment, producing a net financing inflow of about PKR 1.229 billion. (official audited FY2026 result)
For a Modaraba, an operating cash outflow can accompany profitable growth because new customer financing is recorded as an operating deployment. It should therefore be read with collections, asset quality and funding maturity rather than treated like a manufacturing cash burn. Still, lower cash balances and higher running Musharaka make liquidity management more important.
Dividend and capital allocation
The board recommended a final cash distribution of PKR 2.25 per certificate, or 22.5% of the PKR 10 face value. That matches the prior-year cash distribution in rupees per certificate even though earnings fell. The payout equals one-third of FY2026 earnings per certificate, up from about 27.7% in FY2025, based on AlphaGen calculations. (official PSX result announcement)
Retaining roughly two-thirds of earnings supports statutory reserves and balance-sheet growth. The distribution is therefore not aggressive relative to reported earnings, but the rising payout ratio should still be viewed alongside faster asset growth and higher reliance on funding.
Operational context and risks
PSX describes FHAM as a perpetual, multi-purpose Modaraba engaged in leasing, Musharaka, Murabaha and related financing. Its official product archive identifies consumer and corporate vehicle financing, residual-value vehicle structures, machinery and equipment, solar financing, Istisna and Musharaka-based investment certificates. There is no manufacturing volume to analyse; the operating “volume” is financing disbursement and the stock of earning assets. (PSX profile and official product archive)
Management reported PKR 16.529 billion of disbursements in the nine months to March 2026, versus PKR 14.197 billion a year earlier. It described the performance as satisfactory despite declining lending rates and said it was maintaining disciplined risk management. Those are management statements; the audited annual result confirms asset growth but does not yet publish full-year disbursement, customer-sector mix or detailed delinquency metrics. (official March 2026 interim report)
The main risks are spread compression, funding repricing, concentration in vehicles or particular customer groups, collateral-value weakness, late payments, rescheduling, impairment-model changes, liquidity mismatch, taxation and regulatory or Shariah-compliance requirements. A favourable environment combines healthy financing demand, falling funding costs, stable collateral values and low delinquencies. An adverse environment combines weak activity with sticky funding costs and rising defaults.
What to monitor next
The next full annual report should be checked for average yield and cost of funds; stage-wise impairment and non-performing financing; sector and product concentration; gross disbursements; maturity gaps; related-party funding; current and deferred tax reconciliation; and the profit-rate sensitivity of assets and liabilities. In subsequent quarters, the decisive question is whether the larger financing book starts producing higher income without a renewed rise in provisions.
The clearest operating indicators are financing-income growth, financial charges as a share of financing income, net impairment, pre-tax profit, effective tax burden, new disbursements, net financing assets, certificates of investment, running Musharaka, cash balances and equity growth. Sustainable improvement requires income growth to catch up with asset growth while funding cost and credit quality remain controlled.
Sources
First Habib Modaraba — audited financial results for the year ended 30 June 2026, announced 6 August 2026. Open official result
First Habib Modaraba — unaudited report for the nine months ended 31 March 2026. Open interim report
Pakistan Stock Exchange — FHAM company profile and announcement history. Open PSX profile
First Habib Modaraba — official financial statements and product archive. Open company archive