Evergreen Max Cash Capital Bhd (EMCC, 0286) will be making its debut on Bursa ACE Market today. The company primarily involves in pawnbroking services retail and trading of gold and luxury products as well as pawnbroking consultancy services and IT solutions. Capitalize on its expansion plan as well as an 7% unbanked population in Malaysia, we expect EMCC to register net earnings of RM15.5m and RM19m for FY23 and F24 respectively. BUY with a TP of RM0.32 based on 19x PER over FY24 EPS of 1.7sen, which aligns with the average non-banking financial institution peers on Bursa Malaysia.

With a solid 10-year track record, EMCC's pawnbroking business is supported by a network of 22 'Pajaking' pawnshops across Peninsular Malaysia, including 10 in Selangor, 9 in KL, 2 in Negeri Sembilan, 1 in Pahang as well as 3 Cahaya Gold retail outlets which are located in the Klang Valley. EMCC operates in adherence to the Pawnbrokers Act regulated by KPKT, ensuring the full security of pledged items with the bid price or pawn loan plus a monthly 2% markup.

To further expedite growth, EMCC has earmarked RM20m IPO proceeds to establish 5 new ‘Pajaking’ pawnshops in KL, Selangor and Pahang of which 2 new are expected to be operational by mid- 24, followed by the rest towards end-24. These initiatives are aimed at expanding its pawnbroking business, as the current market share (6.9% in the 4 states EMCC operates) still offers ample room for growth. It's worth noting that the pawnbroking gross profit margin has steadily improved from 35.9% to 72.7%, while revenue has increased from RM10m to RM28m from FY19 to FY22.

EMCC could leverage its Cahaya Gold retail outlets to sell unredeemed pledged items for its onward sales, as part of the cash recovery process. As of FY22, 6.6% of gold and luxury products retail and trading business were derived from online channels. Management plans to enhance market visibility via (i) hire additional 3 sales personnel by end-23; (ii) invest in sponsored advertisements on social media and e-commerce platforms; and (iii) purchase inventories of gold products by utilizing RM3.5m IPO proceeds, to meet anticipated improving sales volume.

Though providing IT solutions to Islamic pawnbrokers accounted <1% of revenue in FY22, RM0.2m is expected to be recognized as of end of FY23 through third-party pawnbroking monthly IT solutions fee. EMCC is targeting to distribute a dividend of 20% from its earnings. Based on our estimates, the company is expecting to pay dividends of 0.3sen per share for FY23 and FY24, translating into yields of 1.2% and 1.4% respectively. Post listing, EMCC’s net gearing ratio is expected to improve to 0.32x from 0.39x upon utilization of the IPO proceeds amounting RM4m to repay bank borrowings.

Source: Rakuten Research - 26 Sept 2023

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