• MYR0.29 FV on 1.5x FY24F P/BV. At MYR0.24/share IPO price, Evergreen Max Cash Capital will raise MYR64.2m from the public issue of 267.6m shares. The proceeds will mainly be used to fund the pawnbroker’s expansion plans and new digital marketing initiatives, which are positive for future earnings growth. Our 1.5x P/BV is a discount to its peers’ 1.8x, given its smaller size.

• An established pawnbroker. EMCC is principally involved in the provision of pawnbroking services via its network of 22 “Pajaking” pawnshops in the Klang Valley, Negeri Sembilan and Pahang. As at end-FY22, the group commanded an estimated market share of 6.9% in the four states that it operates in, up from 5.1% in FY21. Additionally, it also trades gold products and luxury items, including unredeemed pledges from its pawn customers. The group also leverages on its expertise in the pawnbroking industry to offer consultancy and IT solution services to third-party pawnbrokers.

• Expansion plans. EMCC intends to establish five new pawnshops by end FY24F using MYR20m of the IPO proceeds. In FY22, the group processed an average of over 9,000 pawn transactions/outlet, with a yield of c.MYR136/transaction. We expect it to book a 12% FY22-25F CAGR in pawn loan transactions, leading to a 17% CAGR in pawn loans disbursed (FY22: MYR351.2m).

• Ramping up digital marketing initiatives. In FY22, c.7% of the total gold and luxury products trading revenue came from online channels. The group sees this as a key growth area, and will be allocating MYR3.5m of the IPO proceeds to intensify its digital marketing initiatives – including hiring three new online sales teams, and utilising sponsored advertisements.

• An optimistic outlook. According to an independent market research report by Providence Strategic Partners, the pawnbroking industry in Malaysia is expected to grow at a 5.9% CAGR between 2022 and 2024. EMCC’s pawnbroking business – the group’s highest margin business – is poised to book decent growth, especially considering its expansion plans. Higher default rates from aggressive growth can also be monetised by the trading business via the sale of unredeemed pledged items. On top of that, the business should also benefit from the gold prices’ rising trend.

• Earnings estimates and valuation. We forecast core PATAMI of MYR17.4m for FY23 (c.+42% YoY), with a 22% FY22-25F CAGR. Growth is expected to be driven by a steady increase in pawn loan disbursements, along with improved margins for its trading business given the rising forecasted trend in gold prices. We peg a 1.5x P/BV to EMCC’s FY24F BVPS to arrive at MYR0.29 FV. This valuation is at a discount to its international peers (c.1.8x) given its smaller market cap and expectations of negative headline earnings growth for FY23F.

Source: RHB Securities Research - 12 Sept 2023