Saturday, November 9, 2013

ValueMax: Gearing For Growth With A Steady Hand

08 NOVEMBER 2013
ValueMax: Gearing For Growth With A Steady Hand
By Daxx Chong
ValueMax Group, one of the oldest and most established pawnshop chains in the local scene, has jumped on the bandwagon and became the latest of the rejuvenated industry to be listed on the Singapore Exchange. Following their successful listing on 30 October, Shares Investment had the privilege to meet up with the executive director Yeah Lee Ching and chief financial officer Carol Liew to gain valuable ground knowledge about the industry as well as understand what is in store for the company.

Shares Investment: The proliferation of modern chain pawnbrokers has given the age-old business a new shot of life, driving the number of pawnshop to grow past 200. What is the outlook for the industry, and for ValueMax?

ValueMax: Two crucial trends – a growing population and an increasing acceptance – are supportive of a sustained growth for the pawnbroking industry. Firstly, Singapore’s resident population aged between 25 years and 64 years (the bulk of our customer base) has grown from 1.9 million in 2000 to 2.3 million in June 2013. Secondly, the establishment of modern-looking pawnshops as well as prolific mass media advertising campaigns have reduced social stigma and consumers are increasingly willing to make use of pawnbroking services.

Our retail and trading of pre-owned jewellery and gold business segment (Retail & Trading) is also set to grow in view of growing popularity of pre-owned jewellery and favourable regulatory changes in relation to developing a new gold refining and trading cluster in Singapore. As such, we are confident in the prospect of our company.

SI: As noted in a report by Voyage Research, the total number of pledges received by the industry increased at a compounded annual growth rate (CAGR) of 13 percent from 2009 to 2012 while the number of pledges received on a per pawnshop basis edged up by only a CAGR of 1.4 percent. Considering that industry growth has been largely attributed to network expansion, how does this come into play for ValueMax?

VM: One of our expansion strategies involves the setting up of new pawnshops and pre-owned jewellery retail outlets in Singapore. Nonetheless, our success in being the most established player among the listed pawnbroking chains lies in being prudent. Setting up of new pawnshops is not a numbers game and we will certainly not embark on an expansion spree that brings little benefits to our bottom line. Evidently, this explains why we have fewer pawnshops despite being longest in the business.

In fact, we are keen in acquiring or investing in existing pawnshops. In terms of market share, we estimate that the three listed pawnbroking chains together control about 40 percent of the pawnshops in Singapore with the remaining 60 percent being smaller chains and independently-run. For the latter, many of them continue to operate in a traditional format – while they enjoy a loyal customer base, they have difficulties in acquiring new and younger customers. Such acquisition can therefore give rise to a win-win situation, whereby we inject our established systems and branding and in return we acquire new customers.

Not to forget, we are the only listed pawnbroking chain that has an active overseas presence. We invested in our first overseas pawnshop through our associated company in Johor Bahru in 2007. Given the regulatory nature of the industry, our overseas presence gives us an invaluable edge against our local peers. Not only is Malaysia’s population projected to grow from 28.6 million in 2010 to 38.6 million in 2040, but also its pawnbroking market is less mature and thus presents scope for higher penetration. As with Singapore, we intend to expand via setting up of new pawnshops and/or acquiring existing ones.

SI: For FY12, the Retail & Trading segment accounted for 95.6 percent of the $509 million revenue but accounted for only 21 percent of the $25.8 million gross profit. What led to this unique financial makeup? Can profitability of the Retail & Trading segment be improved?

VM: Our gold trading business contributed a significant portion (more than $450 million in FY12) to the revenue of the Retail & Trading segment. Notably, we are one of the larger gold traders in Singapore – we take on a distribution role by purchasing gold from suppliers and reselling them to jewellery retailers and factories. Furthermore, the gold trading business is complementary to our pawnbroking and pre-owned jewellery retail businesses as it allows us to dispose scrap gold to refiners. However, by and large, the gold trading business offers a lower profit margin.

The remaining revenue of the Retail & Trading segment came from the retail of pre-owned jewellery, which is one that offers higher profit margin and we are keen to expand. In particular, we intend to further develop our pre-owned jewellery brand “Spring Jewellery” as we see growth potential in such value-for-money offerings especially among the cost-conscious crowd.

Last but not least, we plan to establish a flagship store that comprises of a pawnshop and a pre-owned jewellery retail outlet in a central location. The aim is to create a new market segment such as the high net worth individuals who own articles with pledge values of above $50,000.

Publish date: 08/11/13

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