Well Chip Group Bhd (WCGB), as of the LPD, operates 23 pawnshops in Johor and it plans to open 5 new pawnshops in Johor and 2 new pawnshops in Melaka to increase market share in Johor and penetrate the market in Melaka.
Furthermore, WCGB's future expansion strategy is to eventually increase market share in the other states.
Malacca Securities (MSSB), in an IPO note today said they believe WCGB's track record and expertise will be integrated into the new pawnshops, which should reduce operational risks and improve the group's revenue.
MSSB also believes the current elevated inflationary pressure should continue to be a catalyst for sustained uptrend in gold prices. As a result, WCGB should see revenue improvements in the trading of gold & gold jewellery segment as WCGB will be able to sell the gold items at a marked-up value representing the difference between the increased prices to the prices during procurement.
MSSB cited that from 2024 to 2028, Protégé Associates estimates the pawnbroking industry is estimated to grow at a CAGR of 11.4%, underpinned by demand for immediate access to funds and demand from the unserved population.
Conventional loans require strict requirements namely credit scores which may prevent capable customers from securing loans. This trend is expected to continue due to the uncertain Economic conditions ahead which bodes well for pawnbrokers.
Well Chip Group Bhd provides pawnbroking services, retails and trades new and pre owned jewellery and gold. MSSB likes the company on the back of its (i) expansion plans of the upcoming 7 new pawnshops in Johor (5) and Melaka (2), (ii) positive outlook on gold prices that bode well for the gold trading segment, and (iii) growing number of underserved customers.
WCGB's history traces back to 2006, where they started the pawnbroking services business and the first pawnshop was opening in 2007. The business has expanded to 23 pawnshops and 4 retail outlets as of LPD.
For FY24-25f, MSSB projects the topline growth of 10% to RM224.0m and RM246.4m, respectively, supported by the growth from the planned expansion of the new pawnshops, and the positive outlook of gold prices. Meanwhile, MSSB projects the core PAT to expand 12.3-14.2% to RM41.6m and RM46.7m.
MSSB derived a fair value of RM2.33 (upside of 103.1% against IPO price of RM1.15) is derived by pegging a P/E of 30x to the FY25f EPS of 7.8 sen. MSSB believes a forward P/E of 30x is justified as it is in line with the YTD average current P/E of the selected peers.