ValueMax Group Limited

ValueMax Group Limited ("ValueMax" or the "Company") is offering 138m New Shares at $0.51 each whereby 5m shares will be for the Public and the balance via Placement. The prospectus is here. The IPO will close on 28 Oct 12pm.

Principal Business

ValueMax is one of the oldest and most established pawnbroking chains in Singapore and the first to be listed on the Mainboard of Singapore. The other two competitors, Moneymax and Maxi-Cash are listed on Catalist. I guess I didn't notice this "pawn" because there are no glamorous artiste to "brand" the company. The Company currently has 17 outlets in Singapore.

Financial Highlights

As in such businesses, the revenue is impressive but not the net margins. The Company made $14.3m last year. Assuming the profit is maintained for FY2013, the dividend will be 50% x 16.3m (pro-forma) divide by 533.5m shares = Singapore 1.52 cents. That translate into a projected yield of around 3%.

Based on the enlarged share cap, the PE valuation is around 51 divide by 3.04 = 16.7x. Not exactly "value" for money but much better than its peers. The market cap is around $272m at IPO price.

Peer Valuation

Moneymax is currently trading at 27x PE and Maxi-Cash at 48x PE. While valuation by itself is not 'cheap', valuation of its peers is even more crazy. Clearly from the financial results, ValueMax is definitely a leader in pawn broking over MoneyMax and Maxi-Cash. Moneymax is still 23% above its IPO price and Maxi-Cash is 122% over its IPO price.

I will be more "conservative" and assume a fair peer valuation of 20x-23x, that will translate into a fair value range of between 61c to 70c.

What I like about the Company

• Overseas presence in Malaysia. Compared to its peers, ValueMax has successfully built up a network of 4 pawnshops in Malaysia since 2007 and has intention to expand further.
• Good succession plan. The Founder has groomed his son and daughter to take over the business and they are both certified gemologist. 
• Good IT system allows customers to renew their pawn tickets at any of its outlets.
• An impressive top line of > $450m 
• Clear direction on its business strategies and future plans such as a dedicated flagship store for HNWs. 
• Clear intention to pay 50% of its profit after tax as dividends in FY2013, 2014 and 2015.

My concerns

• Not another pawnbroker. Are we reaching saturation point?
• Given that this is primarily a cash flow business, are the controls adequate to allow the company to expand successfully into Malaysia and overseas.

My Chilli ratings

Given that this is a well run company and a clear "leader" in this industry that is also listed on the mainboard and paying dividends, it should definitely deserve a valuation premium over its peers. In addition, the tight float and cheaper than peers valuation all point towards an 'explosive' debut for this counter. I will give it a 3 Chilli ratings but the small public tranche may once again prove to be a disappointment for many.