Maxi-Cash Financial Services Corporation

[CityFarmer]

The SGX announcement shows Koh Wee Seng (Non-Executive Chairman), purchase another of 700 lots shares today @ S$0.405, with PE of ~40x

With closing price of S$0.44 today, historical PE is ~44x (base on FY2011 ~1cts EPS) and PB of more than 2.

IMO, With insiders buying, and assume Chairman Koh is an astute businessman, pawnshop biz model should have sufficient merit to pursue.

Having said so, i still do not feel comfortable with the valuation given.

Excluding Aspial's shareholding of 81.08%, free float for Maxi-Cash is at a mere 18.92%. Till date, Mr Koh holds 1.31% in direct stake. Effectively, he takes up 6.92% of the remaining free float.

If he continues to buy share and reduce the free float, he is going to become very rich.

IIRC, the free float should be kept above 15%, so i believe Koh can not buy beyond that.

[freedom]

why would 3 pawn shops within 20m a rare thing if considered often KFC is just beside McDonald's? or Sim Lim Square is full of IT shops?

the higher share price does not necessarily enrich the major shareholders as they sure can't sell down their stake at market price. It is just an illusion.

[sgd]

why would 3 pawn shops within 20m a rare thing if considered often KFC is just beside McDonald's? or Sim Lim Square is full of IT shops?

the higher share price does not necessarily enrich the major shareholders as they sure can't sell down their stake at market price. It is just an illusion.

maybe that's called business strategy or some just call it kiasu

maybe that place is really hot location for pawn broking business so if they don't take it up competitors will move in.

One of my ex-reservist friend used to run several shops in sim lim sq selling the same accessories, during one of the ict we asked him the reason why he said the location in sim lim sq is red hot but competition cut throat so he rather pay the rental than allow somebody to come in that way he also controlled prices better. But they kept raising the rental and he had 4-5 shops finally gave it up after a while.

[camelking]

why would 3 pawn shops within 20m a rare thing if considered often KFC is just beside McDonald's? or Sim Lim Square is full of IT shops?

the higher share price does not necessarily enrich the major shareholders as they sure can't sell down their stake at market price. It is just an illusion.

Agree. Rationally speaking, nothing wrong with 3 pawn shops within 20m. In fact, it shows the good decision making of the management in shop location. You don't see any pawn shop in say, changi village do u?

Not vested yet

[shanrui_91]

why would 3 pawn shops within 20m a rare thing if considered often KFC is just beside McDonald's? or Sim Lim Square is full of IT shops?

the higher share price does not necessarily enrich the major shareholders as they sure can't sell down their stake at market price. It is just an illusion.

Only when the pie is big, then it will make sense for everyone to jump in. My own personal impression is that pawnbroking is not that lucrative a business. Perhaps, they are trying to chase out all the traditional pawn shops to maintain a duopoly.

When we talk about fast food, fashion and even bubble tea, there's some form of differentiation in term of products. However, when we talk about pawnbroking, there's hardly anyway to differentiate yourselves other than through price competition.

Yes, you can also talk about branding. But, when someone is desperate for money, does not it make sense for him to look for the one that offers the lowest interest rate? Therefore, when you put the pawnshops together, does not it becomes even easier to find out who can offer him the lowest interest rate?

In fact, if I am a customer, I might even try to negotiate for a better price. Unless there is some form of tacit collusion ongoing where they promised not to lower each other profit margin, their returns will get eroded one day.

My main concern is that since when has pawnbroking became so lucrative that the 2 jewellery players decide to jump in during 2008 and 2009. In fact, number of pawnbrokers increase by 50% from mid 2009 to 2012.

It is definitely likely that profit margin has fattened given the low interest rate we enjoy recently. but what is the growth driver in terms of revenue? You won't be tempted to pawn your products just because there's Maxi-Cash and Money Max around.

Of course, pawnbroking ends up being a very small percentage of Maxi-Cash total revenue. This brings about another question - why are they pursuing this type of business model of a pawnshop in disguise where they are actually selling disconuted jewellery?

[wsreader]

Maybe it is more convenient for the potential customer to get 3 quotations. People don't just pawn their heirloom without checking for the best price.

Perhaps for the same reason, there are many money changers in people's park complex and many travel agencies in people's park centre.

[sgd]

pawn broker is actually disguised money lender.

part money lender, part karang guni, part jewellery seller. Can be very lucrative. Usually before they accept as collateral they will value and give at most 20%-30% of the actual value. And you need to repay the loan with interest within a time frame or lose your collateral or can also renew the loan, the more borrower renew more interest earned the happier the pawn shop.

In the old days if your family owned a pawn shop you can considered well to do.

[CityFarmer]

Of course, pawnbroking ends up being a very small percentage of Maxi-Cash total revenue. This brings about another question - why are they pursuing this type of business model of a pawnshop in disguise where they are actually selling disconuted jewellery?

The revenue of 2nd hand item (discounted jewellery) are much bigger than pawnshop, but the margin is much lower. Pawnshop biz is much more promising compare with the 2nd hand items

You may already aware, revenue of 2nd hand item recorded base on value of item, while pawnshop revenue is interest earned. So the two is not comparable IMO.

[shanrui_91]

just discovered something even more interesting from the prospectus.

Looking at the major customer, more than 50% of the revenue comes from b2b and not retail customers. Hong Kong based Heraeus limited accounted for 49.7%, 70.3% and 76.7% of total revenue in 2011, 2010 and 2009 respectively. In 2011, a total of 61.4% of revenue comes from Heraeus, Aspial and jin Heng Goldsmith.

http://heraeus-precious-metals.com/en/ho...etals.aspx

If you look at heraeus, they are a trading house that deals with all sorts of metal products. In other words, the actual business of Maxi-Cash is to buy old jewelleries and sell it to trading house as commodities like gold, siilver and other precious metal.

Therefore, they are not a pawnshop, not a discount shop but a commodity dealer that is able to buy cheaply from others. If you look at ROE, it is this business that is more promising than pawnbroking. Surprisingly, they seemed very capable of turning over these inventory as the inventory on balance sheet is only at $9.3m as compared to $73.4m in revenue. Neither is there much receivables which mean they have been paid in cash.

[KopiKat]

A long long time ago, I remembered reading an article that some people were making a living out of buying pawnshop tickets / receipts (can't remember what it's called) especially for Gold Jewellery items and then redeeming the said item to be sold to a Gold broker for a quick profit. I did check the newspaper classified ads back then and there were indeed a lot of postings, offering to buy such tickets / receipts.

My question is, whether the Pawn Shop themself could also engage in such practices (assuming it's still possible or legal) or through 3rd party brokers and that may be how they're able to get their source of 2nd hand Gold Jewellery?