PETALING JAYA: Pawnbroker Well Chip Group Bhd is expected to benefit from record-high gold prices on top of its recent acquisition of outlets.
Kenanga Research said notwithstanding three recent acquisitions of matured outlets in Perak, its initial seven new outlets are expected to see “more action”.
“Gold price achieving record-highs is slated to improve pawn loan disbursements as gold bearers can draw down higher amounts on their pledges,” it said.
“We call to ‘add’ on Well Chip with a fair value of RM1.60 a share,” it said.
At last look, the stock was at 99 sen apiece.
In a report, Kenanga Research said aside from organic expansion, in December last year, the group proposed to acquire three privately-owned matured pawnshops in Perak, a region on which it had previously not set its eyes on.
With a combined price tag of RM63.4mil, the deals are due to complete by the first quarter of this year before contributing to group earnings, free of any liability from previous operations, the research house noted.
Kenanga Research gathered the average annual sales per Perak store of around RM25mil and beats Well Chip’s same-store pawnbroking sales of about RM4mil.
However, the former’s gross pawnbroking margin of circa 12% is far inferior from the group’s 80%.
“They believe they can significantly improve the returns from these outlets with the integration of its parent company’s ValueMax Pawnbroking System to enhance the efficiency of managing pawn pledges, track loan transactions and streamline operational procedures.”
Kenanga Research opined pawnbrokers will continue to be sought out as an alternative to conventional loans while being assessable to pockets of underserved communities.
This coincides with the tightening of system approval rates from personal loans and credit card applications, where monthly averages fell from 41% and 63% in 2013 to 34% and 47% in 2024, respectively.
“Strengthening gold prices entitle higher pawn loan values for gold pledges, which are 90% of the group’s collateral.
“While there is a perceived downside risk to pawnbrokers in declining gold prices, Well Chip is guarded by up to a 95% margin to the value of gold pledges. In the event of default, the group is able to time the resale of pledges at more favourable rates.
“Hence, we believe only sharp downturns are harmful to pawnbrokers.”
Kenanga Research added the recent sell down in Well Chip was spurred by the delays in its pawnbroking outlet expansion, being a key feature of its initial public offering.
Concerns are likely to dissipate with the gradual establishment of said outlets, as the group still demonstrated strong earnings growth from its existing footprint, it added.
