From Company's Prospectus
1. Business Description
Engaged in providing pawnbroking services and retail and trading of pre-owned jewellery and watches. Incorporated in 2008, Money Max is engaged in providing pawnbroking services and retail and trading of pre-owned jewellery and watches. It has since established a total of 27 outlets across
From Company's Prospectus
Pawnbroking Services
Collateralize lending. Pawnbroking services generally relate to the provision of non-recourse, short term loans secured by pledged articles. Its customers are typically individuals who require short term funds and are able to pledge valuable articles, such as jewellery and branded watches as collateral.
Retail and trading pre-owned jewellery & watches
Trading business for
jewellery & watches. Max Money retails and trades pre-owned jewellery and watches which they
purchase from (i) walk-in customers; (ii) independent dealers and/or traders of
2nd hand goods; (iii) from their pawnshops' unredeemed pledges which are not
bid for at the licensed public auctions; and (iv) pawnshops' unredeemed pledges
which they successfully bid for at the licensed public auctions
From Company's Prospectus
Despite
contributing 23.2% of FY12 revenue, pawnbroking accounts for 80.8% of Profit
before tax. If
you look closely into the numbers, you will notice that despite contributing
23.3% of FY12 revenue, pawnbroking actually accounts for 80.8% of Profit before
tax!
This is not surprising. Pawnbroking is a form
of collateralize lending. As long as the customer doesn't redeem the pledged
items but continue to service its interest, it can be a good source of
recurrent income. Even in the event that the customer stops paying, Money Max
is well protected due to the collateral it takes.
Do
note that the amount of interest that Money Max can charge is regulated under
the Pawnbrokers Act whereby they are allowed to charge interest at a rate of up
to 1.5% per month on the amount of the loan.
You will also notice (from the table below)
that the trading business for jewellery & watches is a low margin business.
This is a common trait for any physical trading as the goods they trade are
pretty commoditized and one can only compete from a pricing perspective.
Note: For a more detailed explanation of how the 2
businesses work, one can refer to page 68-71 of the Prospectus.
2. Use of Proceeds
From Company's Prospectus
3. Financial Highlights
In
the world of finance, everything is relative.
I
have provided below some comparison between Money Max and its closer
competitor, Maxi Cash.
Round 1: Size (Winner: Maxi
Cash)
Maxi Cash currently has 2 more branches than
Money Max, providing them with more distribution network. Maxi Cash also has a
bigger balance sheet compared to Money Max and thus has a size advantage
compared to Money Max.
Round 2: Financial Numbers (Winner: Money Max)
Despite having a smaller balance sheet and
generating a smaller revenue base, Money Max actually achieved a higher Net Profit
Before & After Tax compared to Maxi Cash. As a result, Money Max were able
to achieve a better margin and Return on Asset. Thus, it seems to me that Money
Max has a higher operating efficiency compared to Maxi Cash.
Round 3: Valuation (Winner –
Money Max)
In
terms of valuation, it seems that Money Max is priced more attractively compared
to Maxi Cash both on a (1) Premium over NAV and (2) PE perspective.
4.
Investment Highlights
Well-established
market player. With
27 outlets strategically located across Singapore, Money Max is a well-established
market player.
Low
interest rate environment. Depending on your interest rate view, this can act as a
double-edged sword. If the interest rate environment continues to stay low, the
pawnbroking business will be a sweet spot, as Money Max can borrow low &
lend higher. This will result to a very decent margin for them.
Money Max
looks cheap compared to Maxi Cash. As highlighted above, Money Max looks cheap
compared to Maxi Cash and on a relative value perspective, it seems like a
safer bet to buy Money Max compared to Maxi Cash.
5.
Investment Risk
Raising
interest rate environment. Note that the amount of interest Money Max can charged
is been artificially capped by the Pawnbroker Act. In the event their borrowing
cost becomes higher, their margin will be squeezed.
Declining
margin on its trading business. Like I mentioned above, physical trading
business is a tough market as the product they trade are pretty commoditized.
If you noticed its NPBT margin for its trading business, it seems to be on a
declining trend, signalling how tough the business actually is.
Volatile
gold price. If
you have been following gold price, you should know how volatile the market has become.
Being a gold trader and taking gold as pledged asset, Money Max might be
exposed to the volatile price action and might get caught on the wrong side
anytime.
6.
Technical Analysis
Technical
bid should be strong for this
given the subscription history of Maxi Cash and its initial price performance.
7. Conclusion
I
have a feeling that this is another “All In” IPO given the cheap valuation and
strong technical bid for it.
I
will definitely put money to work here.
8. Timetable
From Company's Prospectus
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