Saturday, November 9, 2013

Pawnbrokers: Battle to win over customers heats up

Pawnbrokers: Battle to win over customers heats up Print
Written by Jo-Ann Huang  
Monday, 04 November 2013 18:51
ValueMax Group made its debut on the Mainboard on Oct 30. It is the third pawnshop chain to go public, hot on the heels of its direct competitors Maxi-Cash Financial Services and MoneyMax Financial Services. All three stocks were met with enthusiastic response from the market amid the burgeoning local pawnbroking industry.

That is because each of the three players has something going for it, say analysts. Value Max is the most established in terms of outlets and loan value per outlet, and is trading at a relatively low price-to-earnings multiple. Money- Max, on the other hand, is an up-and-coming player that seems to be growing relatively fast. Meanwhile, Maxi-Cash has the largest pawnshop network in Singapore.

ValueMax reported that its 138 million new shares, priced at 51 cents each, received “overwhelming” interest from investors. The IPO comprises five million offer shares to the public for subscription and 133 million placement shares.

The company received 10,576 valid applications for the five million offer shares, translating into an application for an aggregate of 731.6 million offer shares. For its 133 million placement shares, ValueMax received valid applications for 132.9 million placement shares. In total, this makes its IPO 6.3 times subscribed.

Shares of ValueMax closed 2.9% higher at 52.5 cents on its first day of trading. The company is also the first pawnshop chain to trade on the Mainboard, with MoneyMax and Maxi- Cash trading on Catalist. At $301.4 million, ValueMax has the largest market capitalisation, compared with MoneyMax’s $129.1 million and Maxi-Cash’s $187.5 million.

ValueMax has 17 outlets in Singapore, comprising 16 pawnshops and one standalone preowned jewellery outlet. Founder Yeah Hiang Nam is CEO, his son Yeah Chia Kai is executive director of pawnbroking and retailing, and his daughter Yeah Lee Ching is executive director of valuation and wholesale at ValueMax. Founded in 1988, ValueMax prides itself on its core pawnbroking business. To complement it, the company established another business dealing in the retail and trading of preowned jewellery and gold. It started out as a lone pawnshop called Ban Soon Pawnshop in Bukit Merah Central. Yeah brings more than 40 years’ experience in the retailing and trading of pre-owned jewellery and gold.

The company is using its IPO net proceeds, worth $66.3 million, to expand its business. Its expansion plans include growing the number of its pawnshop and pre-owned jewellery outlets, as well as establishing a flagship store in central Singapore and further developing its pre-owned jewellery retail brand Spring Jewellery. It also intends to distribute half of its earnings from FY2013 to FY2015 as dividends.

Chia Kai, better known as Steven, says its flagship outlet will cater to high-net-worth individuals from Singapore and the region. Local pawnshops offer an interest rate of 1% to 1.5%, compared with Malaysia’s 2%. In Hong Kong, China, Taiwan and Indonesia, pawnshop interest rates range from 5% to 7%. The flagship outlet is expected to open in 2H2014 and will feature VIP rooms, offering its wealthy clients privacy and security. The outlet will also retail more expensive jewellery and timepieces. He adds, “Just think of it as a premier service for pawnshops. You can also look at expensive jewellery in a safe and private environment.”

On top of the flagship outlet, ValueMax intends to strengthen its pre-owned jewellery brand. Retailing and trading in pre-owned jewellery is expected to grow, says Steven. “They may be pre-owned but after polishing and refurbishing, they look as good as new and are priced at a fraction of the cost,” he adds.

Analysts have started covering pawnbroking stocks, amid growing investor interest. Voyage Research analyst Liu Jinshu prefers ValueMax to MoneyMax and Maxi-Cash, according to an initiation report dated Oct 30. Liu has issued an “increase exposure” rating on the stock. “ValueMax is more operationally established, having built up complementary businesses in gold trading and pre-owned jewellery retail from its core pawnbroking business,” he writes.

“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,” he adds, noting that ValueMax is an early-mover overseas, with five associated outlets in Malaysia. Pawnbroking revenue per outlet is expected to reach $1.5 million by FY2015, with the number of outlets expected to reach 24. MoneyMax surged 11% from Oct 21 to 25 as the stock rode on news of ValueMax’s IPO.

MoneyMax’s CEO is Peter Lim and his brother Daniel is an executive director. Lim is also founder of the Soo Kee group of companies, one of which is retailer Soo Kee Jewellery. Listed in August, MoneyMax opened its first pawnshop in Yishun in 2008. It now has 29 outlets islandwide, with two latest outlets having opened on Serangoon Road in August. In an email to The Edge Singapore, the company says it embarked on a refurbishment exercise for its outlets, which it believes will translate into higher same-store sales. Each outlet will have more display space and inventory. The move will widen the product range and boost the sales of pre-owned jewellery, adds the company.

In a Phillip Capital report dated Oct 28, analyst Colin Tan points out that MoneyMax has a higher loan balance growth per store than ValueMax and Maxi-Cash. According to the report, MoneyMax chalked up a 25% y-o-y growth for FY2012, compared with ValueMax’s 6% and Maxi-Cash’s 18%. This suggests that MoneyMax has a higher growth potential from existing outlets than ValueMax, writes Tan.

ValueMax has the highest loan balance among the three pawnshop chains, with $8.8 million per store, compared with MoneyMax’s $4.73 million and Maxi-Cash’s $5.17 million, in FY2012. ValueMax’s higher loan balance per store may be due to better location of outlets, better customer service and loyal customers, suggesting that the stores are becoming mature, he explains. Tan has a “buy” call on Money- Max, with a price target of 48 cents.

MoneyMax does not have a dividend policy, which means investors benefit only from capital gains. In its IPO prospectus, Maxi-Cash states that it will distribute 60% of FY2012’s earnings, but will have no fixed dividend policy in the following years. “MoneyMax also has lower revenue than its peers, owing to lower trading of pre-owned valuables. This may benefit MoneyMax, however, owing to lower risk from price volatility of these valuables, while margins are low,” Tan writes.

For 1HFY2013 ended June, MoneyMax reported that earnings fell 35% to $1.8 million from a year ago on the back of an 11.7% drop in revenues to $27.3 million. The lower revenues were a result of the company’s move to increase inventory holdings of pre-owned jewellery and watches, open new outlets and refurbish existing stores. Its cash position stood at $4.3 million.

As at Oct 31, MoneyMax traded at 36.5 cents, compared with its IPO price of 30 cents. Valuations for MoneyMax are at 19 times current earnings, compared with ValueMax’s 16 times and Maxi-Cash’s 41 times. “Maxi-Cash’s high PER may be due to its small public float. It is also very expensive and may be overvalued,” says an analyst who declined to be named.

With 30 outlets, Maxi-Cash has the largest local network of stores among its peers. It opened two new pawnshops in 1H2013 in Serangoon and at the Tiong Bahru MRT station. In 2Q2013, it launched an innovative islandwide renewal service, allowing customers to renew their tickets at any of its stores instead of going back to the original store where the pledge was pawned.

Maxi-Cash was the first pawnshop chain to be listed on the Singapore Exchange. It was spun off from its parent company Aspial Corp, a listed firm that owns the Lee Hwa Jewellery brand. Its chairman is Koh Wee Seng, and his sister Koh Lee Hwee is its CEO. Maxi-Cash made its debut on Catalist in June 2012 at an IPO price of 30 cents. Last November, it announced a bonus issue of one share for every five held by the shareholders.

For 1HFY2013 ended June, Maxi-Cash reported a 7% fall in earnings to $1.65 million on the back of a 22% increase in revenue to $56.7 million. As at June 30, the group had cash and bank balances of $7.1 million. The counter closed at 40 cents on Oct

Publish date: 04/11/13

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