Intrinsic Value S$0.820
IPO Price S$0.510
IPO Heavily Oversubscribed
We initiate coverage on ValueMax Group Limited (ValueMax) with an Increase Exposure rating, following the commencement of trading of its shares on 30 Oct 2013. We had on 24 Oct 2013 issued an unrated IPO Highlight report (“Moving Up to the Next Stage”) that valued the company at S$0.820 per share versus an IPO price of S$0.510. This report assigns a rating to the counter, comments on the IPO results and recaps on some of the investment merits of the company.
Summary of Application Results: Valid applications for a total of 731.6m shares were received in spite of a public tranche of only 5m shares. The company further received applications for 133m placement shares, of which applications for 0.1m shares were rejected due to multiple or invalid applications. The 0.1m shares were thus made available to applications for the public offer.
IPO 6.3x Subscribed: In all, 863.9m shares were validly applied for, compared to only 138m new shares available. The success is in part due to ValueMax’s IPO being attractively priced at 16.7x FY12 P/E compared to 23.3x for MoneyMax and 47.4x for Maxi-Cash. Our valuation of S$0.820 works out to 26.8x FY12 P/E.
Our View: The application results were largely in line with our expectations of a popular IPO. There were only 815 successful applicants, each allotted 1,000 to 28,000 shares, out of 10,576 valid applications received for the 5m public offer shares.
The placement shares were also well received, judging by the allotment results. There were 519 placees, of which 292 of them were allotted 1,000 to 9,000 shares each.
We look forward to further developments from the company on its expansion plans, having raised net proceeds of approximately S$66.3m. The company intends to distribute 50% of its FY13, FY14 and FY15 PATMI as dividends. As such, shareholders can expect to yield 2.5% to 4.5% on the IPO price for FY13 to FY15, based on our profit forecasts.
Recap of Investment Case: We like ValueMax for its differentiated growth strategy and unique business strengths. Compared to its other two listed peers, ValueMax is more operationally established, having built up complementary businesses in gold trading and pre-owned jewellery retail from the core pawnbroking business.
On a per outlet basis, ValueMax outperforms in terms of pawnbroking revenue and loans receivable, suggesting that the company has a tightly managed chain of pawnshops and that new outlets are opened judiciously. ValueMax is also an early mover overseas with associated outlets in Malaysia.
Mix of Organic and Inorganic Growth: While ValueMax intends to continue opening new outlets at desirable locations, the company is also looking at acquiring or investing in existing pawnshops where it can add value by injecting its established business processes, systems and branding. We like such a measured approach towards expansion as it minimizes the risk of industry players crowding each other out, while allowing the acquiring entity to capitalize on targets’ established customer bases and attractive locations.
Regional Expansion: To avoid the constraints of the Singapore market, ValueMax is looking at overseas expansion opportunities. It is in a good position to rapidly scale up in Malaysia given its established position in our neighbouring market. At the same time, the company is looking at entering into new foreign markets in the region.
Opening Up of the High End Segment: Other than looking overseas, ValueMax is also planning to contribute towards the growth of the Singapore market, by opening in 2014 a high end pawnshop, which will accept high value pledges and provide VIP services. If successful, ValueMax will be an early mover in this high end segment.
These factors lead us to be optimistic about the company. More details regarding our findings, analysis of the company and its industry and key risk factors can be found in our IPO Highlight report (“Moving Up to the Next Stage”) dated 24 Oct 2013.
Publish date: 30/10/13