Will Maxi-Cash bring back its past glory of trading at 0.174?
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Stock pitch challenge – Maxi-Cash
Will Maxi-Cash bring back its past glory of trading at 0.174?
Current Highlights
Buy back of bonds showing market confidence :
Recently the company announced an offering to purchase in cash up to S$5 million in total
principal amount of its outstanding 5.5 per cent notes due in 2020, and to exchange any and all
of these outstanding notes for a like principal amount of new 6.35 per cent notes due in 2022.
This shows investor (market) confidence as well as serves to provide proof of their plan to improve
debt position and reduce negative carry .
Australia expansion progress as planned :
The company has been on track with progress for its new luxury boutique which was opened
earlier in the year ( June 26, 2019 ) . Australia has proved to be a suitable market due to the
gap in the fast growing, Austrailian market.
Business Description
Maxi-Cash (parent organization : Aspial Corporation ) is a company that provides financial
services in the form of Pawnbroking and money lending. They also focus on retail and trade of
jewellery and timepieces. The retail and trade business has also attained Case Trust Accreditation
from the Consumer Association of Singapore ( CASE ). With over 45 outlets in singapore alone
and international boutiques in Malaysia and Australia, the company is one of the market leaders
in Singapore.
Geographic and business segments :
The company mainly focuses on three segments : Pawn broking business, Retail and trading of
jewellery and branded merchandise and Money lending. About 57 % percent of the revenue in
FY2018 came from the Retail and trading business, 28 % from the money lending business and
the rest ( about 14%) from the pawn broking business. The company saw an increase in revenue
in all the three business segments from FY2017. Currently most of the revenue streams in from
the Singapore market followed by Malaysia and then Australia.
Maxi-cash services and market strategy:
As stated before the major revenue driver in the company is the Retail and Trading Business.
This business segment mainly focuses on retail of pre-owned jewellery , watches , branded bags.
The company has also established themselves as a reliable luxury business jewellery brand. The
company also holds exclusive partnerships with luxury jewellery suppliers such as Jewelmer.
The Money lending business saw a significant increase of about 368.45% form the FY2017 in
terms of revenue. Entry into this market has provided the company with positive contribution in its
revenue stream, which has enabled it to expand and improve their services for the following
years.
The company has been one of the market leaders in the pawn broking business in Singapore with
about 35 % percent market share. Although this segment of the business is the smallest
contributor in revenue for the company , it has allowed market penetration and has helped
establish the company thus paving way for the other business segments.
Industry overview and competition
Pawn Broking Industry
The pawn broking industry, at least in Singapore, has undergone tremendous changes with the
recent and rapid advances in technology and administration. With the rise of ecommerce and
certifiers the industry has seen an increase in overall revenue, awareness and safety.
1Stock pitch challenge – Maxi-Cash
The Pawn broking industry is however a hard industry to penetrate. Due to the large capital
requirement of the industry , most companies in the industry are under immense debt and thus
have leveraged balance sheets. This creates a highly exclusive market, with little to no- change
in the industry leader.
However, despite being a relatively new company, Max-cash grown rapidly and has become one
of the industry leaders, all while maintaining a relatively healthy balance sheet while gaining
overseas exposure.
Competitors and competitive positioning
Currently the main competitors in the Singapore market are ValueMax and MoneyMax. ValueMax
is the oldest player in the industry with over three decades of experience. MoneyMax financial
services started by Soo Kee jewelery has a primary focus on jewellery similar to MaxiCash.
With both bottom and top line performances in considerations Maxi-cash has been the leader.
With a unique focus on innovation in terms of the goods and services sold as well as the market
strategy the company has been able to grow revenue and increase profits year after year.
Although MoneyMax also focuses on the jewelry business, the market share and exposure of
MoneyMax is quite small and does not hold competitive advantage over MaxiCash.
ValueMax, MaxiCash’s biggest competitor, however has seen a steady decline in both revenue
and profits due to increased competition in the industry . This could be due to the brand and trust
value that MaxiCash has earned over a period of time by addressing and investing in the local
community while promoting worthy causes that support the less privileged.
Valuation
Maxi-Cash has reached maturity and its profit margin is getting thinner
It is trying to diversify its business in new markets(Australia) to extend their business life cycle
and put it back to growing phase + buying back notes and issuing new notes with longer
maturity date so that there is enough capital for capital expansion(2019)(raising debt->growth
cycle)
Net profit has increased 9.60% year-on-year since the start of the expansion into foreign
markets(Australia)(2018->2019)
Dividend yield has increased by 31.68% year-on-year from 2018 to 2019(increase in dividend
per share and reduction in price per share)
Dividend per share is positively correlated to Earnings per share(increase in profits signals an
increase in dividend)
Payout ratio has increased 20.9%(on average) from 2017 to 2019
2Stock pitch challenge – Maxi-Cash
3Stock pitch challenge – Maxi-Cash
Discounted Dividend Model(DDM-Gordon Growth Model) is used as Maxi-Cash is dividend
paying company
Assumption: 1) Dividends grow by a specific percentage(constant) each year 2)Maxi-Cash is a
mature company looking for ways to grow. The regular payment of dividends does imply that the
company has matured and there may not be much volatility associated with the growth rates
and earnings.
The net profit margin becomes thinner(decreases) till 2018 and starts to pick up momentum in
growth as it moves on to 2019 signalling the start of growth cycle.
D1 = Value of dividend to be received next year, D0 = Value of dividend received this year,
g=Growth rate of dividend, Ke = Discount rate
With this we can see that through DDM we have the intrinsic value to be 0.174(underpriced)
which has an upside of 33.8% relative to the current price.
We have attempted to do the valuation based on multipliers which is a relative valuation model.
We have decided to use P/E ratios and EV/EBITDA ratios to do the analysis and we have
included the main competitors of MAxi-Cash,ValueMax and MoneyMax, as part of this analysis.
4Stock pitch challenge – Maxi-Cash
Based on the multiplier valuation, we can conclude that Maxi-Cash is overpriced using P/E ratio
and underpriced using EV/EBITDA ratio.
We did not use DCF as part of the valuation as the cash flow is not stable and there are 3 years
where the free cash flow is negative. As a result it is difficult to predict the cash flows for the
following year. To use the DCF model most effectively, the target company should generally
have stable, positive and predictable free cash flows.
In conclusion, we have decided to go with the intrinsic value of 0.174 using DDM as it falls in the
range of the historical records of prices thereby making it a more suitable choice for the
recommendation.
5Stock pitch challenge – Maxi-Cash
Financial Analysis
High historical revenue growth and potential growth due to expansion into foreign
market. 5UF has achieved a significant annual growth of 5.7% in its revenues for FY18
resulting in annual sales of SGD 203m. Since 2015 to date, 5UF has generated a strong CAGR
on sales of 13.8%. 5UF has 2 source of revenues; pawnbroking and jewelry retail business. Of
which, pawnbroking business contribution to revenue rose by 4.8% and a 1.2% increase from
the latter. Mainly due to the end-market demand for loans and luxury goods. 5UF has out-
performed peers during the year 2018, with an average of 0.8% increase in revenue in 2018.
For 2019, we expect 5UF to significantly outperform the pawnbroker market. 5UF is the first
pawnbroker in Singapore to expand an retail outlet in Melbourne, Australia. With the revenue
from direct retail sales in Melbourne, revenue is expected to increase in 2019.
SGD in millions Annual Revenue of Maxi-Cash Growth in %
250 40
34.7%
203 35
200 192
30
163
25
150
121 17.7%
20
100
15
10
50 5.7%
5
0 0
2015 2016 2017 2018
Year
6Stock pitch challenge – Maxi-Cash
Stronger bottom lines via further deleveraging of the balance sheet. Per year-end 2018
5UF’s gross debt was worth SGD 319m, of which 70m is a bond set to mature in 2020. 5UF
issued new S$50 million 6.35 per cent three-year notes, of which 26.5m to be issued in
exchange for notes expiring in 2020 and remaining 23.5m new notes to refinance the
repurchase of 14m worth of notes. Due to this issuing of notes to refinance repurchases, current
debts are likely seen to decrease in 2019. We forecast a deleveraging of the capital structure
which will end in 2022 as the debt would be fully repaid. We can expect debt reduction followed
by a simultaneous rise in cash flows.
Net debit of Maxi-Cash
350 5
290 4.5% 297
300
4
250
SGD in millions
200
% growth
200 3
150 2.3%
2
100
1
50
0 0
2016 2017 2018
Year
Series1 Series2
7Stock pitch challenge – Maxi-Cash
5UF is able to manage it’s cashflow better than its peers. In a pawnbroking business where
cashflow is generally negative due to high operating expenses from giving out loans, 5UF is
able to maintain a positive cashflow in 2018. It’s free cash flow margin is relatively low
compared to its peers, in 2018, FCF 1.1%, compared to its peer ValueMax which has of -2.8%
Free Cash Flow
10000
862
0
2016
2017
2018
-10000
-20000
SGD in Thousands
-30000
-30658
-40000
-50000
-60000
-70000
-80000
-78039
-90000
8Stock pitch challenge – Maxi-Cash
Resources:
Buy back notes :
https://www.businesstimes.com.sg/companies-markets/maxi-cash-offers-to-buy-back-55-notes-
or-exchange-them-for-new-635-notes
Australia :
https://insideretail.asia/2019/06/26/maxi-cash-opens-its-first-luxestyle-boutique-in-australia/
Industry :
http://aspire.sharesinv.com/53906/si-research-is-the-pawnbroking-industry-a-lucrative-business/
MaxiCash :
https://maxi-cash.com/
Financials Maxi-Cash:
http://www.shareinvestor.com/fundamental/financials.html?counter=5UF.SI
https://sg.finance.yahoo.com/quote/5UF.SI/financials?p=5UF.SI
https://sg.finance.yahoo.com/quote/5UF.SI/analysis/
Financials Peers:
https://www.shareinvestor.com/fundamental/financials.html?counter=T6I.SI
https://www.shareinvestor.com/fundamental/financials.html?counter=5WJ.SI
https://sg.finance.yahoo.com/quote/T6I.SI/balance-sheet?p=T6I.SI
https://sg.finance.yahoo.com/quote/5WJ.SI/financials?p=5WJ.SI
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