Maxi-Cash Financial Services Corporation

[dydx]

FY12 (ended 31Dec12) results just out.....
http://info.sgx.com/webcoranncatth.nsf/V...8003D8948/$file/Masnet_2012.pdf?openelement
and the company is unshamedly proposing yet another 1-for-5 bonus issue.....
http://info.sgx.com/webcoranncatth.nsf/V...8003C065F/$file/Bonus_Issue.pdf?openelement [note: today's announcement was wrongly dated as "20 February 2012" - a rather sloppy mistake!]
, after having only completed a similar 1-for-5 bonus issue in Dec12 - i.e. slightly over 2 months ago - soon after its IPO on 22Jun12.

Notwithstanding the higher reported NP and the proposed 2nd bonus issue, very frankly I am totally unimpressed by this company! The profit margins especially in the all-in-important ROE measurement is very mediocre even after adjusting for the effects of the one-off IPO expenses and the new capital raised in the IPO. As at 31Dec12, the company's B/S carried $127.9m in total borrowings, including $48.6m owed to the parent company. Is this an indication that banks are not willing to fund the company's fast-expanding - but still insufficiently tested with regard to collectibility over time - customer trade receivables portfolio?

[safetyfirst]

As much as i think this company is overvalued, i still have to agree that management bothers to please existing shareholders, perhaps to the detriment of new shareholders.

On the other hand, we have companies like SingH that is on the opposite end of the spectrum when management doesnt seem to bother about the depressed share price. I agree that management cant decide what price the company trades at, but management can engage in actions that have the company trade at a fair price. A fair price will do, a price of aspial's or oxley's is unnecessary.

Perhaps such management should swap places. lol

[greengiraffe]

My Comments:

New business at what price? These modern pawn shops need to content with rising rentals and they increased market share by under-cutting (normalised profits). In addition, it will be interesting to note if changes in precious commodity prices such as gold will have an adverse impact on their profit margin should they have taken the wrong view on their price trend.

Fundamentally, to pay such a high PE for a to maturing finance business, I think one should be looking at proven but overlooked finance houses.

Not Vested

New-look pawnshops mean new business

Loans rise to $7.1b as newcomers revamp industry with special rates and classy outlets

Published on Mar 10, 2013



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Heng Seng Pawnshop in Toa Payoh Central. Its boss, Mr Ivan Ho, spent $250,000 renovating it just before Chinese New Year this year to give it a more "cosy and modern feel". -- ST PHOTO: NURIA LING

Heng Seng Pawnshop in Toa Payoh Central. Its boss, Mr Ivan Ho, spent $250,000 renovating it just before Chinese New Year this year to give it a more "cosy and modern feel". -- ST PHOTO: NURIA LING

Heng Seng Pawnshop in Toa Payoh Central. Its boss, Mr Ivan Ho, spent $250,000 renovating it just before Chinese New Year this year to give it a more "cosy and modern feel". -- ST PHOTO: NURIA LING
This bag made of solid gold was pawned at Heng Seng. -- ST PHOTO: NURIA LING


By Theresa Tan

It is golden times for the pawnbroking industry, with the amount of loans given out by pawnshops more than tripling from $2 billion in 2009 to $7.1 billion last year.

The loan bonanza comes after the entry into the pawn business, over the past five years, of jewellery firms Soo Kee Group and Aspial Corporation, starting Moneymax and Maxi-Cash respectively.

These new chains have revolutionised the industry with promotional interest rates, swanky shops and advertising campaigns.

Their promotional interest rates - half a percentage point less per month than what pawnbrokers used to charge - drew more customers, including people in their 30s or younger.

Add to that the rising price of gold - almost doubling in the past five years - which has led more people to cash in their gold jewellery, and pawnshop loans jumped 43 per cent from close to $5 billion in 2011 to $7.1 billion last year.

This is a contrast to the period between 2002 and 2008, when pawnshop loans hovered between $1.2 billion and $1.8 billion a year, according to the Registry of Moneylenders and Pawnbrokers.

Industry players say the entry of Maxi-Cash and Moneymax put new brawn into pawn.

Maxi-Cash opened its first store in 2009 offering a 1 per cent promotional interest rate for the first month's loan. This undercut the 1.5 per cent a month - the maximum set by the Registry of Pawnbrokers - that had been the norm.

Now, almost every shop in town is offering this 1 per cent rate for the first month's loan, said Mr Ivan Ho, president of the Singapore Pawnbrokers' Association. The 60-year-old runs a pawnshop, Heng Seng, started by his late father, Mr Ho Kiat Cheong, in 1971.

Industry veterans said they had to follow suit or lose business. That 1 per cent first-month rate also changed the way people paid off their loans, a factor contributing to soaring loan amounts, said Mr Ho.

Many renew their loans more frequently to enjoy the lower first-month interest rate - they pay only 1 per cent interest a month if they renew the loan every month. Otherwise, they pay 1 per cent for the first month and 1.5 per cent a month after that.

Each time a loan is renewed, it is recorded as a fresh loan, and the total loan amounts shoot up as loans are renewed more frequently, Mr Ho explained.

Moneymax entered the picture in June 2008 and has 25 shops now. Maxi-Cash started eight months later and has 28 stores. Their rapid expansion helped drive up the number of pawnshops from 114 in 2008 to 191 last year.

Breaking away from the intimidating tiled-wall shopfronts and service counters with metal bars at traditional pawnshops, their stores sport a modern look with staff wearing smart uniforms.

Maxi-Cash aims for a "friendly and approachable" decor, said senior brand manager Magdalene Eng.

The newcomers are also big on advertising - almost unheard of in in the past - hiring actors such as Michelle Chia and Mark Lee to front campaigns.

The marketing efforts have weakened the stigma of visiting a pawnshop, pawnbrokers say, and helped draw younger customers.

Commonly known as the poor man's bank, pawnbrokers say they get clients from all socio-economic classes, including well-heeled businessmen with cashflow problems.

ValueMax - another chain - cites a diamond trader who pawned a 22-carat diamond for half a million dollars.

Indeed, ValueMax is an example of how a traditional pawnbroker rebranded itself to keep up with the times.

The origins of the family-run business go back more than two decades. Its operations director, Ms Yeah Lee Ching, 41, said her father, 64-year-old Mr Yeah Hiang Nam, started pawnshops such as BanLi and Soon Soon in the late 1990s.

A former marketing manager, she joined the business in 2004 and felt a more modern-sounding brand name would appeal to the younger English-educated crowd. So ValueMax was conceived.

The first store opened in 2004 and there are now 15 of them. The BanLi and Soon Soon shops have been renamed ValueMax too and redone to have a "21st century look".

However, with more players and lower interest rates, profits have plunged for those who are not part of a chain.

Industry veterans say that a decade ago, a shop could earn a few hundred thousand dollars to more than $1 million in profit a year.

"Now, you are lucky to even get half of that," said one veteran, who declined to be named. "Many pawnshops are barely breaking even or making just a small profit."

The chains are doing well.

Maxi-Cash, which last year became the first pawnshop to be listed on the stock exchange, turned in a profit in its third year of operations.

It lost about $6 million in its first two years, attributed largely to start-up costs. It made a net profit of $7.3 million in the past two years combined.

Soo Kee managing director Peter Lim said Moneymax did well last year but declined to give figures.

All three chains are still expanding. Moneymax plans to open five more branches this year; Maxi-Cash, two; and ValueMax, at least one more.

theresat@sph.com.sg

Background story

NOT JUST JEWELLERY

Forget the usual gold jewellery.

These days, you can pledge designer bags, branded pens and even luxury phones at some pawnstores for a loan.

The ValueMax chain, for example, accepts from regular customers high-end designer bags, Mont Blanc pens and even Vertu phones worth tens of thousands of dollars apiece.

Its operations director, Ms Yeah Lee Ching, says that while it rarely accepts branded bags because of storage space reasons, "we do it for customers we know as an added service. Besides, bags from prestigious brands have a good second-hand value".

Brands it has bagged include Louis Vuitton, Prada and Hermes. They are usually pawned for several hundred dollars a bag, depending on the brand.

Besides women parting with their bags, ValueMax sees men pawning their branded wallets or briefcases as well, she says.

Its luxe loans also appeal to regular clients who are wealthy businessmen who have run into cashflow problems.

[CityFarmer]

My Comments:

New business at what price? These modern pawn shops need to content with rising rentals and they increased market share by under-cutting (normalised profits). In addition, it will be interesting to note if changes in precious commodity prices such as gold will have an adverse impact on their profit margin should they have taken the wrong view on their price trend.

Fundamentally, to pay such a high PE for a to maturing finance business, I think one should be looking at proven but overlooked finance houses.

Not Vested

The business model of pawn shop has been proven profitable. It is similar as credit card service business but lesser risk with its collateral

The risk of changes in gold price is real, but it is moderated effectively by prudent loan-to-value ratio.

Having said so, Maxi-Cash PE of 39 versus average banking and finance sector's PE of 11-12 is over-priced IMO. I assume bonus issue and high dividend payout ratio play an important role to push-up the valuation.

The rational of bonus issue after less than a year of IPO, and high dividend payout ratio for growing strategy of a capital intensive business are few un-answered questions of mine.

(not vested)

[Muck]

I'm still quite baffled at how in general, some investors can be contented that the dividends received from their shareholding in a company is financed (wholly or partially) from debt!

[CityFarmer]

I'm still quite baffled at how in general, some investors can be contented that the dividends received from their shareholding in a company is financed (wholly or partially) from debt!

I reckon those "investors" are short-term speculators, or even day-traders? They are definitely be contented with short-term push-up of share price, even it is done by debt IMO.

[2V.]

I have followed the Koh group of Co since Lee hwa (now Aspial) listing, as far as Koh concern, you want to ride with me, pay a premium. Short term traders / investors are not welcome.

I'm still quite baffled at how in general, some investors can be contented that the dividends received from their shareholding in a company is financed (wholly or partially) from debt!

I reckon those "investors" are short-term speculators, or even day-traders? They are definitely be contented with short-term push-up of share price, even it is done by debt IMO.

[Contrarian]

> Having say so, Maxi-Cash PE of 39 versus average banking and finance sector's PE of 11-12 is over
> -priced IMO. I assume bonus issue and high dividend payout ratio play an important role to push
> -up the valuation.

IMO, the pawnshop loan assets is likely to be more real and easy to convert to cash. I believe when u pawn a rolex watch, IF IT IS REAL, they will give you probably $75 for a $100 market watch. And then plus interest of 1% per mth, which ends up with 12% interest per year.

So the downside is less than a bank's loan books, especially business loans. A bank property loan, they want the business, they accept the developer's high valuations.

Their biggest expenses could the location of the shop they rent.

Anyone can confirm this?

[CityFarmer]

> Having sais so, Maxi-Cash PE of 39 versus average banking and finance sector's PE of 11-12 is over
> -priced IMO. I assume bonus issue and high dividend payout ratio play an important role to push
> -up the valuation.

IMO, the pawnshop loan assets is likely to be more real and easy to convert to cash. I believe when u pawn a rolex watch, IF IT IS REAL, they will give you probably $75 for a $100 market watch. And then plus interest of 1% per mth, which ends up with 12% interest per year.

So the downside is less than a bank's loan books, especially business loans. A bank property loan, they want the business, they accept the developer's high valuations.

Their biggest expenses could the location of the shop they rent.

Anyone can confirm this?

The top 3 costs base on FR are
- material cost
- other operating cost (rental related)
- employee benefit

Material cost is 70 cents out of a dollar of revenue. Rental related cost is 13 cents, and employee is 8 cents, out of a dollar of revenue.

Yes, rental is a significant part of expense.

[Contrarian]

> material cost

What is included in material cost in a pawnshop??? Didn't read the AR or dig deep into the company.

They take items from customers at a discount.

Do they buy new items and sell it?