He writes: “The stock trades at a historical price-to-earnings ratio (P/E) of just five times - below that of regional peers - and provides upside to growth, driven by pawnbroking and moneylending loan book growth, as well as better margins from its gold retail segment.”
Based on Yeo’s analysis, the correlation between the price of gold and the value of pawnbroking loans given in Singapore is relatively strong, at 0.7, with a higher gold price, therefore, supporting a larger amount of loans given.
Between the gold price and value of loan per pledge, he adds, the correlation is even stronger, at 0.9.
“As such, while customers are pledging for more loans when the price of gold is high, each pledge would yield a higher loan amount. An environment of strong gold prices bodes well for pawnbrokers – their ability to supply loans and increase their loan books for net interest income revenue growth also grows,” writes Yeo.
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Presently, MoneyMax is focused on growing its pawnbroking footprint through outlet expansion and acquisition of smaller pawnshops, with the aim of growing its pawnbroking loan book.
It has acquired independent pawnshops over the years, in addition to opening new outlets.
Yeo adds: “Its moneylending segment, which started in 2018, has grown in terms of loan book as well, and will ride on the Singapore economy’s appetite for secured car loans and real estate collateralised personal loans.”
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Growth in the company’s retail segment, meanwhile, will be driven by sales of higher-margin commemorative and souvenir gift products.
Key risks to MoneyMax’s growth include fluctuation in gold prices, the US dollar and interest rates.
More specifically, a decline in gold prices would lower the value of its gold positions, and the amount of loans that it can extend to customers.
Furthermore, unredeemed pledges in a lower gold price environment may also result in the loss of interest income, and lower realisable value from its gold collateral.
Shares in MoneyMax closed flat at 47.5 cents on June 18.
