First pawnbroker on Bursa eyes five more outlets

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PETALING JAYA: Pappajack Bhd, the first pawnbroker en route for listing on Bursa Malaysia (pic) plans to expand its market reach and grow revenue.

It has plans to open five more pawnbroking outlets in the next three to six months in Peninsular Malaysia.

It is also not averse to buying up competition to grow its market share.

The company will raise additional funds from bank borrowings and/or the capital market to finance its business expansion when required.

For its initial public offering (IPO), it could potentially raise up to RM50mil.

TA Research said Pappajack has a network of 25 pawnbroking outlets.

It foresees revenue growth of about 10% in financial year (FY) 2022 with the new outlets but net profit could slip by 0.5% due to the two-year gestation period.

The group should be able to post stronger profit growth of around 10% in FY23 to RM7.9mil, it said.

It based its earnings projections on key assumptions of stronger than industry’s revenue growth led by the opening of the outlets and gross margins of around 40% for FY21 and FY23, respectively.

It said Pappajack’s gross profit climbed by about 13.3% year-on-year to RM10.5mil in the forward price to earnings 2021.

At an IPO price of 30 sen per share, Pappajack is priced at a trailing price-to-earnings ratio of 24.4 times FY20 earnings per share.

TA Research valued the company based on Malaysia’s average non-bank financial institution price to book ratio of 1.4 times to FY21 book value, thus arriving at a fair value of 34 sen per share.

The research house said its valuation took into account the potentially stronger revenue growth prospects due to Pappajack’s aggressive expansion plans, healthy double-digit gross margin of around 40% and first-mover advantage.

On a pro forma basis, post-listing with pre-IPO reorganisation and utilisation of proceeds, the net asset position and gearing level is expected to be RM160.2mil and 0.005 time respectively.

Pawnbrokers are controlled by the Housing and Local Government Ministry under the Pawnbrokers Act 1972.

The set maximum amount of pawn loan that may be issued under a single pawn ticket is RM10,000 with monthly interest rate of 2%.

There are 716 companies with pawnbroking licences issued by the ministry.