Thursday, February 19, 2015

Checking out the 3 Local Pawnbrokers

Here on the SGX, there are 3 pawnbrokers. ValueMax (VM), MaxiCash (MC) and MoneyMax (MM).

I guess out of my huge list of stocks, these 3 fall into a very specific and distinct group which I can use to compare with each other, so I thought I'd start on these 3 stocks first. Should I eliminate any of these from my watchlist? Should I eliminate all of them? We shall find out together!

OSK/DMG did a research on them mid last year, but I think I'll be looking at their most recent financial statements and try to make a comparison from there.

I'm using all their 3Q statements since MoneyMax has not released their full year results. I doubt there is much difference. The main adjustment I did was to proportionately change the EBITDA from their 9 month figures to an estimated 12 month figure.

*Mislabel: "Gross Revenue" should be "Profit Before Taxes". Figures are correct.

ValueMax is the only pawnbroker of the 3 that is listed on the Mainboard, while the other 2 are on the Catalist.

Although VMhas the smallest number of outlets, based on market cap it is as big as both MC and MM combined together. However, looking at EBITA, VM is pulling in almost double of what both of them combined bring in. Is VM undervalued, or are the other 2 stocks overvalued?

Profitability-wise, although VM has the lowest GP%, it has the highest NP%. This is probably due to the higher amount of revenue that it goes through, since a lot of the costs are fixed regardless of transaction volume. If MC and MM can push up their volumes, it would seem that they would have a big improvement to their bottom line. However, is that possible? Both of them have almost double the outlets of VM.

Financially, VM again is the best looking. It is the most well capitalized as well, has the highest amount of payables as debt and also has the lowest debt/equity ratio by far. Between MC and MM, MM looks better, but marginally. They both look horrible to me. How did these 2 get past my screening of Debt/Equity > 2? That's why I have to look at each stock's financials.

Dividend-wise, why am I not surprised to see VM as the top performer again? Keep in mind that both MC and MM have a cash hoard about 2-3 times smaller than VM.

Valuation-wise, isn't it strange to see that the biggest company, with the highest net income margins, with the strongest balance sheet and highest dividend yield being the most poorly valued? It seems that pawnbroker investors do not like quality but love trash. Based on both EV/EBITDA and P/NAV metrics, VM is the cheapest by a large margin! MM, while looking expensive, is a lot cheaper than MC which just looks ridiculous.

Business-wise, it seems that MM is moving into the right direction by launching an online platform. I don't think this changes anything much. If this online model works (which I doubt it's effectiveness as a channel), it is very very easy for the other 2 pawnbrokers to jump on the bandwagon. Cute, but effective? We shall see.

Oh, but of course Maxi-Cash has the nicest marketing. C'mon, it's Michelle Chia! MC endorsing MC? Also very cute right.

Anyway, I am glad I did this exercise. I would not invest any money to Maxi-Cash or MoneyMax. Even if MM's price dropped by 50%, I'm not sure if I would like it over ValueMax. ValueMax looks the best to me fundamentally, and based on valuations, I like even more. I do not have any positions in any of these stocks, but I honestly wouldn't mind to own ValueMax now at this price. Maxi-Cash and MoneyMax are banished from the watchlist, at least for many more moons to come.


  1. Hi GMGH,

    Good Post. I was deciding on which pawn business to go to and unfortunately Michelle Chia looks so tempting that I couldn't resist. LOL.

    I bought Maxi-Cash because of its rights issue - foolishly thinking that every rights issue is a sure win. Luckily my position is tiny and I will probably hold it for many moons. Maybe a M&A one day?

    1. Hi Derek,

      A woman's captivating gaze can be powerful, haha!

      Well, on the plus side they do have the most outlets and a pretty healthy gross margin. If the pawnbroking business turns around and they can catch the volume, they seem to be in a pretty good position to catch the upswing and improve fundamentally. Hopefully the valuations move along in tandem with the fundamental improvement.

      However, I have come across quite a few stocks that had recent years of fundamental improvement, but still had their share prices drop (and thus negative total returns) because they were working off previously high valuations.

      But this is just my way of looking at it. I'm sure you have your methods! Huat ah!

  2. Damn, you had the same brainwave as me a few days ago, LOL. Still deciding, though.

    1. It's okay Lepak, I would like to see your analysis too!


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