Making its debut on Bursa Main Market today, Pappajack Bhd (“Pappajack” or “the Group”) is an established pawnbroker offering pledges-backed short-term financing or pawn loans with a short repayment period to pawners. Pappajack provides pawnbroking services through a network of 25 pawnbroking outlets in Malaysia. Pappajack has shown its commendable growth story coupled with its upcoming expansion. BUY with a target price of RM0.39 based on 1.4x PB multiple to its FY22F BVPS of 28sen. Its valuation is at a premium to its peers of non bank financial companies, given its secured lending business model as compared to traditional banks as well as its market share of 2.9% in Malaysia.

Started its first pawnbroking outlet in 2014, Pappajack is positioned to serve the population who may be financially unserved or underserved, to offer short term micro loans. Pappajack serves as an alternative financial solutions and temporary financial needs. The pawn loans Pappajack offer are all collateralized by pledges which safeguard interests thus lowering their risk to sustain business with pledges that hold an intrinsic value enabling the Group to sell the pledges for cash to recover the loan amount disbursed to customers.

Furthermore, it has a network of pawnbroking outlets which are strategically located at convenient locations, in close proximity to residential housing areas or commercial areas and with easy access to public transportation such as buses, LRT and MRT. Each of its pawnbroking outlet is held and operated by a subsidiary of the Group and each subsidiary is individually licensed and governed by Kementerian Perumahan & Kerajaan Tempatan (KPKT) and under Pawnbrokers Act 1972. Pappajack’s business expansion in the long term is premised on the setting up and opening of new pawnbroking outlets and/or acquiring third party pawnbroking outlets to widen its network and increase market reach.

Of the RM50.1m IPO proceeds, the Group plan to use RM19.22m for the initial set up costs and working capital requirements for the 5 new pawnbroking outlets. The 5 new outlets are expected to commence operation in 3 to 6 months. Meanwhile, proceeds of RM27.08m will be allocated to its existing 20 pawnbroking outlets to finance the deployment of more pawn loans.

We expect Pappajack to register net earnings of RM10.0m and RM11.3m for FY22 and FY23 respectively. Its balance sheet is also healthy with net cash of RM49.5m post IPO.

Source: Rakuten Research - 1 Apr 2022