ValueMax Group

The yield is reasonable at current price level but the key is growth for one who want to vest in this. Gold price is not helping which kind of muted their growth. They each strive to evolve from it. ValueMax appears to me to more conservative but they have lending business which is an edge that helps them in last report.


Cory

I think Value Max price is fair. It is not really cheap and it's growth prospects is not really exciting. I am not vested and don't intend to buy it in near future.

'In the "old days", they could raise only half of the value of their collateral but now, with pawnshops having sprung up and scattered across Singapore's heartlands, pawners get 80-90 per cent of the prevailing value of the items hocked.'

1) Given the very high loan to valuation offered by pawn operators, large declines in gold price can result in huge losses. Effectively, the pawn operators are betting that gold price will not fall by 10%-20%. Being conservative, I personally will not make such a bet. I will feel safer with a 70% LTV ratio. Whether or not the LTV ratio set by pawn operators is appropriate, is open for debate.

2) Since pawn operators are already quite aggressive with their LTV ratio, assuming that gold price remains the same, growing the pawn business will require higher volumes. No data on volume of gold pawned is available, so we can't really tell if there is a trend of owning and pawning more gold, per capita. But looking at Valuemax's pawnbroking segment profit may provide us with some clues.

Pawnbroking segment profit
FY10: $8.7m
FY11: $10.4m
FY12: $11.5m
FY13: $8.0m
FY14: $6.6m
FY15: $6.6m
FY16: $9.1m

The numbers from FY10-12 were very nice, which happened to be the years prior to IPO. Which were also the years when gold price reached highs of US$1.8k. Thereafter, profits declined slowly as gold price receded and stabilized. Perhaps a higher volume of gold was pawned in 2016. Or perhaps a higher LTV ratio was used. The good thing is the business has remained profitable. But since the LTV ratio cannot exceed 100%, and since a ratio higher than 90% is very risky, there is not much room to grow margins through raising the LTV ratio. Singapore's population is now growing more slowly, so we can't count on that for volume to grow. The only thing pawnbrokers can hope for is rising gold prices, which is perhaps the biggest reason for the growth that the pawnbroking industry has seen in recent years. Between 1985 and 2005, gold remained within US$400.

3) A large number of retail shops spread over numerous town centres provide a wide net to haul in customers. But this is highly inefficient since the shops are empty most of the time. Perhaps to make better use of the rent and wages spent, the concept of retailing in a pawnshop was introduced. But how has this served the overall business? Let's look at the retail segment profits. This is why hitherto pawnbrokers does not exist in large chains.

Retail segment profit
FY10: $4.5m
FY11: $5.0m
FY12: $3.4m
FY13: $0.4m
FY14: $0.8m
FY15: $0.9m
FY16: $0.8m

Certainly, huge revenues were generated but the margins are very thin, as it is evident that the profits are very small. I'm curious why profits fell sharply after IPO and never seemed to recover, and yet revenues continue to grow. More intense competition perhaps? But it seems that retailing has not added much value to the overall business, though at least it isn't pulling it down. On the books, it holds $59m of inventories, against a book value of $170m. Its inventory days increased from 41 for FY13 to 101 for LTM. If inventory days continue to increase, they may need to impair some of the Prada they bought.

4) As market interest rates increase, Valuemax's borrowing cost will move in the same direction. Yet, it has a cap on the interest rate it can charge its customers. Could this lead to pawnbroking margins being squeezed? There is also the possibility of gold price further receding with higher interest rates, though it should be noted that numerous factors can influence gold price. Valuemax's current interest expense is about $6.2m a year, on debts of about $200m. You can simulate various scenarios on the effect of interest expense on its profit.

Taking all these into consideration, the $160m market value of Valuemax does not look like a bargain to me.

Anyone can verify if Valuemax is owed monies from Honestbee?

Valuemax has been reporting higher profits, particularly from its moneylending/pawnbroking segments. It also has a marginally profitable trading business. 

But its decreasing revenue from trading, against the increasing inventory from trading, suggests that the company may be facing increasing difficulties to dispose of a portion of its inventories. 

(in $m)  Trading Revenue              Trading Inventory           
FY10:     383                                         17
FY11:     512                                         26
FY12:     486                                         32          
FY13:     332                                         43
FY14:     304                                         44
FY15:     246                                         45
FY16      223                                         56
FY17:     204                                         57
FY18:     166                                         64
HY19:     n.a.*                                       76

*Not specified, but similar to HY18, according to results released.

What are these inventories that are building up? Certainly, they are not gold, which can be easily melted down, or Rolexes, which are in popular demand. Could it be LV bags, or AP/PP watches? 

Are these inventories items that customer used for collateral, but have since given up?

In any case, Valuemax (and its auditors) appears confident that these inventories will eventually be disposed, since it has not written them down in any way.

(19-08-2019, 11:19 AM)karlmarx Wrote: Valuemax has been reporting higher profits, particularly from its moneylending/pawnbroking segments. It also has a marginally profitable trading business. 

But its decreasing revenue from trading, against the increasing inventory from trading, suggests that the company may be facing increasing difficulties to dispose of a portion of its inventories. 

(in $m)  Trading Revenue              Trading Inventory           
FY10:     383                                         17
FY11:     512                                         26
FY12:     486                                         32          
FY13:     332                                         43
FY14:     304                                         44
FY15:     246                                         45
FY16      223                                         56
FY17:     204                                         57
FY18:     166                                         64
HY19:     n.a.*                                       76

*Not specified, but similar to HY18, according to results released.

What are these inventories that are building up? Certainly, they are not gold, which can be easily melted down, or Rolexes, which are in popular demand. Could it be LV bags, or AP/PP watches? 

Are these inventories items that customer used for collateral, but have since given up?

In any case, Valuemax (and its auditors) appears confident that these inventories will eventually be disposed, since it has not written them down in any way.

Same observation on this too. It is indeed a worrying trend if inventory continues to build up. It is somewhat more worrying as ValueMax appears to be taking in other luxury items (other than Rolex/Gold) as this isn't really their core expertise imo. Even more worrying, ValueMax is venturing into unsecured territory which could result in significant write-offs.

From the annual report, seems like inventories are the gold holding.

Quote:Inventories principally comprise gold held for trading and inventories that form part of the Group’s normal purchase, sale or usage requirements for its retailing activities. All the inventories of the Group for its gold trading business is measured at fair value less costs to sell, with changes in fair value less costs to sell recognised in profi t or loss in the period of the change. All other inventories are stated at the lower of cost and net realisable value. Finished goods include costs of raw materials, labour and an attributable portion of overheads, determined on a specific identification basis. Where necessary, allowance is provided for damaged, obsolete and slow moving items to adjust the carrying value of inventories to the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.

One can confirm by walking into one of their 33 outlets: https://www.valuemax.com.sg/pawnbroking/our-stores/

Or check out their online store: https://www.valuemax.com.sg/shop/ The main categories listed are: rings, earrings, pendants, bracelets, necklaces and watches. I don't think they are buying up LV bags, unlike other operators.

There is an old report that stated the general guidelines for unsecured money lending.

The amount limits are as follows:
- Annual income < $20k: Up to $3,000
- Annual income $20k - < $30k: Up to 2 months' income
- Annual income $30k to $120k: Up to 4 months' income

They also conduct credit-worthiness checks via the Credit Bureau. Unless they have very lax lending standards, or loan out huge amounts of money in violation of unsecured money lending guidelines, it seems unlikely that there will be significant write-downs in the unsecured money lending business.

Also, check out the attachments for Minlaw statistics on the number of licensed money lenders in Singapore, and the outstanding loan amounts.

Valuemax does hold gold in its inventory. But how much?

In its Annual Report, it categorises its inventory into 'Commodity inventories at fair value,' and 'Other inventories at the lower of cost and net realisable value.' 

It seems reasonable to assume that its gold inventories are held under 'commodity inventories.'

If so, what does 'others' consist of?

($000)    Commodity Inventories                      Other Inventories
FY10:     9,065                                                     8,566                                                                                                    
FY11:     8,546                                                     18,352
FY12:     8,940                                                     23,424
FY13:     5,198                                                     38,102
FY14:     4,362                                                     39,884
FY15:     2,091                                                     43,243
FY16:     2,910                                                     53,296
FY16:     3,565                                                     54,097
FY17:     5,740                                                     58,310


As for its money lending segment, I have no knowledge of its proportion of unsecured loans, but I have the impression that most of it is secured to real estate.