IPO Price S$0.51
Fast cash on hand
Summary: ValueMax Group is one of the oldest pawnbroking chains in Singapore, providing pawnbroking services, retail and trading of pre-owned jewellery and gold. The group intends to distribute dividends of at least 50% of its net profits for the next three years, implying a 2-3% dividend yield. We like that the pawnbroking industry is relatively stable. However, we think that its short term performance could be hit by the weakness in gold price. We recommend a STAG, given the positive first week debut track record of its two peers.
• Risks. 1) Short team weaknesses from gold prices as the group’s main operations include the trading and selling of gold. Gold prices have dropped around 25% from its peak and according to Bloomberg consensus estimates, will continue to decrease around 3-4%/year over the next two years. As a result, its 1Q13 revenue and income decreased 39% and 35% yoy, respectively. 2) Net margins could be affected by higher labour cost, rental expenses and competition from other pawnbroking chains such as MoneyMax and Maxi-Cash.
• Expansion plans to offset declining revenue due to softening gold prices in the mid to long term. The group’s expansion plans include the opening of new outlets, acquisition of business in Singapore and Malaysia and development of its pre-owned jewellery brand, “Spring Jewellery”.
• Value vs the other two listed pawnbrokers. In comparison to its peers trading at 20x-40x PER and around 3x PBR, ValueMax will be offering slightly better value at 19x PER and 1.9x PBR. In addition, it is the biggest amongst the three in terms of both revenues and net profits. Its net profit is almost double that of the other two combined, and in our view, deserves a premium.
Company Background and Business Plans
ValueMax opened its first outlet in 1988 and is recognized as one of the oldest pawnbroking chains in Singapore. Since then, it has expanded to 17 outlets across Singapore, comprising 16 pawnshops and pre-owned jewellery retail outlets and 1 standalone pre-owned jewellery retail outlet. Its network also includes 3 pawnshops in Singapore and 5 outlets in Malaysia through its associates.
Strategies for growth. With the IPO proceeds, it plans to:
1) Expand its network of outlets through acquisitions of business in Singapore and Malaysia.
2) Set up new pawnshops and pre-owned jewellery retail outlets in Singapore and other countries.
3) Establish a flagship store in a central location in Singapore targeting different customers, including high net worth individuals who own articles with pledge values of above S$50k.
4) Develop its pre-owned jewellery brand, “Spring Jewellery” as the group believes there is potential for growth in pre-owned jewellery.
Based on the Issue Price, estimated net proceeds from the issue of New Shares, after deducting the underwriting commission, placement commission, brokerage and other estimated expenses payable in relation to the issue of New Shares (estimated to be approximately S$4.1m), will be approximately S$66.3m.
Publish date: 25/10/13