Well Chip Group Bhd non-executive director Yeah Chia Kai said the company’s loan size is determined by the value of the collateral and more than 90% of its collateral from its customers is gold.

KUALA LUMPUR (June 26): Well Chip Group Bhd, the first pawnbroker en route to the Main Market of Bursa Malaysia, expects rising gold prices to boost its ability to lend more to its customers.

The company’s loan size is determined by the value of the collateral and more than 90% of its collateral from its customers is gold, said Well Chip’s non-executive director Yeah Chia Kai. That would allow the company to collect a higher amount of interest from its creditors, he noted.

“We will take a cut against the retail value of the gold,” Yeah said at a press conference following the launch of its initial public offering (IPO). On average, the company will lend 60% to 70% of the replacement costs for the gold items at the retail level, he said.

Well Chip is involved in the provision of pawnbroking services and business of retail and trading of jewellery. Currently, the group has 27 operating outlets in Johor, comprising 23 pawnshops and four retail outlets which are adjacent to its pawnshops.

On Wednesday, the company unveiled its IPO prospectus to raise RM172.5 million. Proceeds from the IPO will be mostly used as working capital to increase its pledge book and as initial set-up costs and capital for the new pawnshops to be opened.

Well Chip is also resilient against short-term volatility in gold prices and when gold prices decline, a customer will have to pay more than the initial value to reclaim the item, said Yeah. “We have a lot of tolerance to gold price volatility,” he said.

The group’s pledged receivables have recorded double-digit growth over the past two financial years. It expanded by 30.7% from RM249.4 million in FY2021 to RM325.9 million in FY2022, and further by 22.5% to RM399.3 million in FY2023. The financial year ends on Dec 31.

“The good thing about short-term loans is that they pay back,” chairman Mak Lye Mun said at the same press conference. “We have 70% of repeat customers... besides, they are unlikely to give away their gold at a discount [and] they want to pay back.”

Well Chip’s default rate is around 10% while the company’s interest rate is about 20%, Mah noted. Further, the company still has the collaterals and “you may get back 100% of what you lend,” he said.

For FY2023, the group’s net profit climbed 40.1% to RM35.3 million from RM25.2 million. Revenue jumped 28.8% to RM203.7 million from RM158.1 million, of which 60% is mainly contributed by its retail and trading of gold and jewellery.

As at May 27, 2024, the group recorded a gearing ratio of 1.57 times. Cash and bank balances stood at RM12.5 million against borrowings of RM192.5 million. Well Chip expects to lower its gearing ratio to 0.79 times after the listing exercise and the utilisation of the proceeds.