Through its subsidiaries, Evergreen Max Cash Capital Bhd (EMCC) is principally involved in the provision of pawnbroking services, i.e. provision of short-term secured pawn loans to individuals aged 18 and above. These individuals may be part of the population that is underserved by financial institutions. In addition, the group is also involved in the business of retail and trading of gold and luxury products as well as provision of pawnbroking consultancy services and information technology (IT) solutions to third-party pawnbrokers, whom the group has identified to not be in direct competition with its “Pajaking” pawnshops. As at 31 July 2023, the group has a network of 22 “Pajaking” pawnshops in Peninsular Malaysia, of which 19 are located in Kuala Lumpur and Selangor, two in Negeri Sembilan and one in Pahang.

EMCC intends to open five new “Pajaking” pawnshops in Kuala Lumpur, Selangor and Pahang, in order to capture a larger market share. Besides that, the group plans to increase the market visibility of its gold and luxury products retail and trading business. We derive a fair value of RM0.30 based on a c.19x PE multiple to its FY24F EPS of 1.6sen. The IPO is expected to raise approximately RM64.2m from the issuance of 267.6m new shares. Besides utilising 31.1% and 46.7% of the proceeds for expansion of pawnshops and cash capital for pawnbroking business, respectively, 6.2% and 8.8% of the proceeds are allocated for repayment of bank borrowings and working capital, respectively.

• Growth drivers. EMCC’s growth will be driven by: i) expansion of its pawnbroking business, and ii) increased market visibility of its gold and luxury products retail and trading business.

• Competitive strengths. EMCC’s competitive strengths include: i) ability to serve the unbanked and underbanked population, ii) network of pawnshops which are strategically located, and adhering to the regulations and guidelines, iii) experienced and committed key management, and iv) proprietary pawn processing system for enhanced operational efficiency and standardised operating procedures.

• Catalysts. Key drivers may include: i) immediate access to funds without proof of income or review of credit score ratings requirements, ii) relatively higher interest rates charged for unsecured borrowings, iii) increased acceptance of gold as an investment among growing population with increased disposable income, and iv) cultural affinity towards gold jewellery.

• Key risks. Key downside risks, among others, include: i) competition, ii) exposure to unlawful and suspicious transactions, iii) volatility in the price of gold, iv) unsecured borrowing with profit target requirement, v) potential changes in regulatory requirements, and vi) possible termination and/or non renewal of lease or rental agreements.

Source: PublicInvest Research - 12 Sept 2023