My Comments:
New business at what price? These modern pawn shops need to content with rising rentals and they increased market share by under-cutting (normalised profits). In addition, it will be interesting to note if changes in precious commodity prices such as gold will have an adverse impact on their profit margin should they have taken the wrong view on their price trend.
Fundamentally, to pay such a high PE for a to maturing finance business, I think one should be looking at proven but overlooked finance houses.
Not Vested
New-look pawnshops mean new business
Loans rise to $7.1b as newcomers revamp industry with special rates and classy outlets
Published on Mar 10, 2013
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Heng Seng Pawnshop in Toa Payoh Central. Its boss, Mr Ivan Ho, spent $250,000 renovating it just before Chinese New Year this year to give it a more "cosy and modern feel". -- ST PHOTO: NURIA LING
Heng Seng Pawnshop in Toa Payoh Central. Its boss, Mr Ivan Ho, spent $250,000 renovating it just before Chinese New Year this year to give it a more "cosy and modern feel". -- ST PHOTO: NURIA LING
Heng Seng Pawnshop in Toa Payoh Central. Its boss, Mr Ivan Ho, spent $250,000 renovating it just before Chinese New Year this year to give it a more "cosy and modern feel". -- ST PHOTO: NURIA LING
This bag made of solid gold was pawned at Heng Seng. -- ST PHOTO: NURIA LING
By Theresa Tan
It is golden times for the pawnbroking industry, with the amount of loans given out by pawnshops more than tripling from $2 billion in 2009 to $7.1 billion last year.
The loan bonanza comes after the entry into the pawn business, over the past five years, of jewellery firms Soo Kee Group and Aspial Corporation, starting Moneymax and Maxi-Cash respectively.
These new chains have revolutionised the industry with promotional interest rates, swanky shops and advertising campaigns.
Their promotional interest rates - half a percentage point less per month than what pawnbrokers used to charge - drew more customers, including people in their 30s or younger.
Add to that the rising price of gold - almost doubling in the past five years - which has led more people to cash in their gold jewellery, and pawnshop loans jumped 43 per cent from close to $5 billion in 2011 to $7.1 billion last year.
This is a contrast to the period between 2002 and 2008, when pawnshop loans hovered between $1.2 billion and $1.8 billion a year, according to the Registry of Moneylenders and Pawnbrokers.
Industry players say the entry of Maxi-Cash and Moneymax put new brawn into pawn.
Maxi-Cash opened its first store in 2009 offering a 1 per cent promotional interest rate for the first month's loan. This undercut the 1.5 per cent a month - the maximum set by the Registry of Pawnbrokers - that had been the norm.
Now, almost every shop in town is offering this 1 per cent rate for the first month's loan, said Mr Ivan Ho, president of the Singapore Pawnbrokers' Association. The 60-year-old runs a pawnshop, Heng Seng, started by his late father, Mr Ho Kiat Cheong, in 1971.
Industry veterans said they had to follow suit or lose business. That 1 per cent first-month rate also changed the way people paid off their loans, a factor contributing to soaring loan amounts, said Mr Ho.
Many renew their loans more frequently to enjoy the lower first-month interest rate - they pay only 1 per cent interest a month if they renew the loan every month. Otherwise, they pay 1 per cent for the first month and 1.5 per cent a month after that.
Each time a loan is renewed, it is recorded as a fresh loan, and the total loan amounts shoot up as loans are renewed more frequently, Mr Ho explained.
Moneymax entered the picture in June 2008 and has 25 shops now. Maxi-Cash started eight months later and has 28 stores. Their rapid expansion helped drive up the number of pawnshops from 114 in 2008 to 191 last year.
Breaking away from the intimidating tiled-wall shopfronts and service counters with metal bars at traditional pawnshops, their stores sport a modern look with staff wearing smart uniforms.
Maxi-Cash aims for a "friendly and approachable" decor, said senior brand manager Magdalene Eng.
The newcomers are also big on advertising - almost unheard of in in the past - hiring actors such as Michelle Chia and Mark Lee to front campaigns.
The marketing efforts have weakened the stigma of visiting a pawnshop, pawnbrokers say, and helped draw younger customers.
Commonly known as the poor man's bank, pawnbrokers say they get clients from all socio-economic classes, including well-heeled businessmen with cashflow problems.
ValueMax - another chain - cites a diamond trader who pawned a 22-carat diamond for half a million dollars.
Indeed, ValueMax is an example of how a traditional pawnbroker rebranded itself to keep up with the times.
The origins of the family-run business go back more than two decades. Its operations director, Ms Yeah Lee Ching, 41, said her father, 64-year-old Mr Yeah Hiang Nam, started pawnshops such as BanLi and Soon Soon in the late 1990s.
A former marketing manager, she joined the business in 2004 and felt a more modern-sounding brand name would appeal to the younger English-educated crowd. So ValueMax was conceived.
The first store opened in 2004 and there are now 15 of them. The BanLi and Soon Soon shops have been renamed ValueMax too and redone to have a "21st century look".
However, with more players and lower interest rates, profits have plunged for those who are not part of a chain.
Industry veterans say that a decade ago, a shop could earn a few hundred thousand dollars to more than $1 million in profit a year.
"Now, you are lucky to even get half of that," said one veteran, who declined to be named. "Many pawnshops are barely breaking even or making just a small profit."
The chains are doing well.
Maxi-Cash, which last year became the first pawnshop to be listed on the stock exchange, turned in a profit in its third year of operations.
It lost about $6 million in its first two years, attributed largely to start-up costs. It made a net profit of $7.3 million in the past two years combined.
Soo Kee managing director Peter Lim said Moneymax did well last year but declined to give figures.
All three chains are still expanding. Moneymax plans to open five more branches this year; Maxi-Cash, two; and ValueMax, at least one more.
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Background story
NOT JUST JEWELLERY
Forget the usual gold jewellery.
These days, you can pledge designer bags, branded pens and even luxury phones at some pawnstores for a loan.
The ValueMax chain, for example, accepts from regular customers high-end designer bags, Mont Blanc pens and even Vertu phones worth tens of thousands of dollars apiece.
Its operations director, Ms Yeah Lee Ching, says that while it rarely accepts branded bags because of storage space reasons, "we do it for customers we know as an added service. Besides, bags from prestigious brands have a good second-hand value".
Brands it has bagged include Louis Vuitton, Prada and Hermes. They are usually pawned for several hundred dollars a bag, depending on the brand.
Besides women parting with their bags, ValueMax sees men pawning their branded wallets or briefcases as well, she says.
Its luxe loans also appeal to regular clients who are wealthy businessmen who have run into cashflow problems.
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