Tuesday, October 22, 2013

ValueMax Group Limited

Short Summary:
ValueMax Group Limited established their first pawnbroking outlet in 1988. They believe that they are one of the oldest and most established pawnbroking chains in Singapore, providing pawnbroking services and the retail and trading of pre-owned jewellery and gold. They believe their strong track record as well as in-depth and extensive industry knowledge have contributed to the company growth and steady expansion to 17 outlets in strategic and convenient locations across Singapore, comprising 16 pawnshops with pre-owned jewellery retail outlets as well as one (1) standalone pre-owned jewellery retail outlet. ValueMax's Singapore network also includes three (3) other pawnshops with pre-owned jewellery retail outlets operated by their associated and investee companies. In Malaysia, they operate five (5) outlets through their associated companies, which they believe makes them the only local pawnbroking chain with an overseas presence.


The Deal:
Offering Price: S$0.51
The Offering: 138,000,000 Shares (Include 5,000,000 Offering Shares to Singapore Public)
Cornerstone Investors:
None, management will own 74.1% of the enlarged shares.
 
Forecast Dividend Yield:
2012: 2.63%*
2013: No Forecast
2014: No Forecast
*Based on issue price of $0.51, 533,497,960 units after IPO, profit after tax of $14.300 million in 2012 and minimum 50% profit distribution policy.
 
 
 
Dividend Policy:
Although ValueMax currently do not have a formal dividend policy, the company intend to distribute 50.0% of their profit after tax attributable to their Shareholders for each of FY2013, FY2014 and FY2015 as dividends (which could include scrip dividends) (“Proposed Dividend”), as the company wish to reward their Shareholders for participating in the Group’s growth. Such dividends will depend on the company actual and projected operating results, financial condition such as the company cash position and retained earnings, other cash requirements including future capital expenditure, restrictions on payment of dividends imposed on the company by their financing arrangements (if any) and other factors deemed relevant by their Directors. A scrip dividend scheme will be adopted in accordance with the Listing Manual should a decision be made by the company Directors to issue scrip dividends. Investors should not treat the Proposed Dividend as an indication of the Group’s future dividend policy.

Strength
-Participation in the pawnbroking, pre-owned jewellery and gold industry value chain allows the company to harness revenue from complementary sources.
-Overseas presence in Malaysia through our associated companies.
-Skilled, experienced and qualified work force.
-Experienced and committed Board of Directors and management team.
-Proprietary operational software and data management system, allowing customers to renew their pawn tickets at any of the company outlets in Singapore since 2011.
-Established market position, with revenue of more than $450 million in FY2012.
-Established and award-winning company.

Business Strategies and Future Plans
-Expand our network of outlets through acquisition of businesses in Singapore, and through our associated companies in Malaysia.
-Set up new pawnshops and pre-owned jewellery retail outlets in Singapore and other countries as well as through our associated companies in Malaysia.
-Establish a flagship store comprising a pawnshop and a pre-owned jewellery retail outlet in a central location in Singapore to target different customer segments, including high net worth individuals who own articles with pledge values of above $50,000.
-Achieve a higher degree of integration of our businesses by offering incentives or discounts to our customers to use all the services we provide at our outlets and further leverage our businesses of pawnbroking as well as retail and trading of pre-owned jewellery and gold to provide a wider range of pre-owned jewellery items to our customers.

Weakness
-Our business requires substantial capital and any disruption in funding sources or increases in interest rates on our funding would have a material adverse effect on our liquidity and financial condition.
-Gold price volatility may affect our profitability.
-We may be subject to misappropriation of cash or assets.
-Our business may be affected by non-renewal of leases or increase in rental of our shops.
-Competition in the industries we operate in is intense and any decline in our competitiveness could result in us losing market share and revenues.
-We do not have operational and management control over our associated companies.
-We are dependent on automated systems to operate our business.
-We may face uncertainties associated with the expansion of our business.
-We may require additional funding for our future growth.
-We are subject to risks relating to the economic, political, legal or social environment in Malaysia.
-We are affected by foreign exchange controls in Malaysia.
-High gearing of 39.26%


No doubt, ValueMax is in a leading market position as they have the highest revenue (>S$500 millions in FY2012) among the 3 pawnbroker companies once listed. In addition, they have exposures to Malaysia market, which will give it an edge over MoneyMax and Maxi-cash, which focus just solely on Singapore market. However, prior to IPO, I will like to point out that they actually have a gearing 54.07%, with most of the debt due to bank overdrafts as they expand their pawnbroking business. Utilization of bank overdrafts isn't a good idea for business due to the high interest rate they are charging, but with this IPO, they should be cutting down on the overdrafts and profit margins should increase. For their released 1Q2013 results, revenue is down sharply by 38.7% compared with 1Q2012 due to declining gold prices in 2013. 1Q2013 gross profits is down 14.1% compared with 1Q2012, help in large due to lower utilization of bank overdrafts. Based on FY2012 earnings, the issue price of $0.51 carries a PE of 12.59, which is considered a bit expensive for an IPO counter. Personally, I think there is no strong incentive in subscribing for this IPO, with lower profit in the coming quarter and high PE as a backdrop. However, if the management do use the money raised effectively for expansion, this might be a worthwhile investment as shareholders should see their investment bearing fruits 6-12 months later. As the management controls 74.1% of the company post IPO, this can potentially be an illiquid counter in the future.

Some useful information:
[21 Oct 2013], [5.00 p.m.] : Opening date and time for the Public Offer.
[28 Oct 2013], [12.00 noon] : Closing date and time for the Public Offer.
[29 Oct 2013]: Balloting of applications under the Public Offer, if necessary.
[30 Oct 2013], [9.00 a.m.]: Commence trading on a “ready” basis.
 
Rating for investment: 5.0/10

Disclaimer: You may use the above information as a guide, but please invest based on your own judgment.

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