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Pawnbroking: Rejuvenation Of A Traditional Industry
Perspective | 08 November 2013
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By: Shane Goh
Articles (99) Profile

With their recent initial public offerings, MoneyMax Financial Services and ValueMax have joined Maxi-Cash Financial Services Corporation to list their pawnbroking and jewelry business on the Singapore Exchange (SGX), Shares Investment decided to take a closer look at the industry’s nuts and bolts.

The past five years have been a boon period for the industry as pawnshop loans given out amounted to $7.1 billion last year, up 3.9 times from 2008. As revenue went up, the number of pawnbroking shops grew from 114 in 2008 to 201 as of 1 October 2013.

However, many aspects of the industry remain governed tightly. In Singapore, the legislated maximum interest rate for pawn loans is 1.5 percent a month and initial pawn period is six months. To protect consumers’ interest, any pawned items not redeemed or renewed after six months will be placed on auction, with any excess cash obtained from the sale to be returned to the customers.

Intriguingly, the industry has changed tremendously in recent years. In place of family-run pawnshops fronted by metal bars, we now have brightly lit facades without any barriers between the client and shop employees. In the past, consumers would only choose to pawn their possessions during times of absolute necessity. While the modern society still values their prized items, pawning is now viewed as a means to short term, securing financing.

More importantly, it satisfies a service that banks are unable to provide. In general, financial institutions do not accept jewelry and watches as collaterals when granting loans to their clients. This is where pawnshops step in to extend a line of credit to consumers who require a short term solution for an immediate need.

With a heightened level of acceptance, the population would be more open to engaging pawnshops’ services. In Singapore, our headcount has grown from 4.2 million in 2002 to 5.4 million in June 2013. Additionally, the government has laid out a 6.9 million population target by 2030, which would ensure a steady growth in customer base for the industry.

Notably, non-residents’ population doubled from 0.8 million to 1.6 million over the same period. Non-residents, particularly Indian nationals, make up a significant portion of the industry’s jewelry business as they purchase gold pieces with the intention of remitting them to families back home.

Gold Price
One of the biggest risks for pawnshops is their vulnerability to the price volatility of gold. The commodity has traditionally been seen as a safe haven from turbulence in the equity and currency markets, particularly the US dollar. Following the Lehman Brothers collapse in September 2008, gold price more than doubled as the value of the US currency fell.

Monetary expansion policies, in particular Quantitative Easing (QE), were the root cause of this effect as investors sought means to preserve the value of their assets. However, with a potential QE tapering coming up, the US dollar might rise, which could result in a drop in gold prices. If the price of gold tumbles, the broker may find the value of the unredeemed pledges being unable to make up for the loans granted.

Despite population growth and positive change in perception, companies within the pawnshop industry may be hit by a devaluing of gold and stiff competition from its peers, both chains and traditional shops. It may appear that venturing overseas, to expand their reach, could provide a much needed catalyst for an overly saturated industry in Singapore.

Business Model
As we turn our spotlight over to the three companies listed on the SGX, we note that the pawnshop industry has registered commendable margins and turnover over the past few years.

Sources: Respective Annual Reports And Prospectus; Figures Accurate As Of 4th November 2013

Although ValueMax was the first to begin operations, it was the last of the three to list on the SGX. Despite boasting the largest market capitalisation among the three, it possesses the least number of outlets compared to Maxi-Cash and MoneyMax. However, ValueMax is the only listed pawnbroker with an overseas presence.

All three firms experienced significant growth in their turnover with Maxi-Cash leading the way, jumping from $54.9 million in FY10 to $100.5 million in FY12. Interestingly, while the revenue breakdowns were similar for MoneyMax and Maxi-Cash, ValueMax only derived 4.4 percent of its turnover from interest income of pawned items with the balance attributed to the retail and trading of pre-owned jewelry.

Given how growth in the pawnbroking segment has improved MoneyMax and Maxi-Cash’s margins, we would expect a similar story experienced by ValueMax moving forward.

A quick glance would show that MoneyMax commands superior margins compared to the others, underpinned by a surge in profit before tax in its pawnbroking segment. However, MoneyMax has the highest leverage ratio amongst the three with total debt of more than 2.2 times its equity. In this regard, ValueMax appears to be the safest choice with the lowest leverage of 1.3 times.

Currently pursuing his Chartered Financial Analyst qualification, Shane provides coverage on the property, consumer and environmental sectors at Shares Investment.

Please click here for more information about this author.

Maxi-Cash Financial Services Corp  -- -- --   
Business: Pawnbroker. [FY18 Turnover] Retail & trading of jewellery & branded merchandise (75.4%), pawnbroking (20.2%), money lending (4.4%).

Insight: May-19, 1Q19 revenue slid 13.5% due to lower sales... Read More
MoneyMax Financial Svcs  0.134 -0.003 -2.19%   
Business: Co is a leading pawnbroker in the region. [FY18 Turnover] Retail & trading of pre-owned jewellery & watches (74.2%), pawnbroking (25.8%).

Insight: May-19, 1Q19 revenue rose 6.6% mainly due to incre... Read More
ValueMax  0.290 +0.005 +1.75%   
Business: Co provides pawnbroking services & the retail & trading of pre-owned jewellery & gold. [FY18 Turnover] Retail & trdg of pre-owned jewellery & gold (79.6%), pawnbroking (13.2%), moneylending (7.2%).

Insight: Feb-19, FY18 revenue fell 12.8% to $208.7m due to ... Read More

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