PETALING JAYA: As the gold-backed pawnbroking industry faces rising liquidity constraints, the funding tightness has also provided equal leverage for higher-capital pawnbrokers.
“The industry is experiencing pressure from rising liquidity constraints amid a record-high gold price environment and increased refinancing activity,” said Maybank Investment Bank (Maybank IB) Research in a report.
According to the research house, the strained liquidity across lenders had led some operators to scale back on new pawn disbursements.
However, the research house noted that pawnbrokers, including Well Chip Group Bhd
, are positioned to capture the loan demand gap, given the company’s capacity to leverage on its low net gearing.
The group engages in the provision of comprehensive pawnshop services and the retail and trading of both new and pre-owned gold jewellery.
Well Chip has grown to over 27 pawnshop outlets, with five dedicated gold retail stores across Malaysia.
At the end of last September, the group had maintained a modest net gearing of up to 0.6 times, with additional debt headroom of up to RM161mil to support its loan book.
“In the run up to the peak spending periods like Chinese New Year, Ramadan and Aidilfitri, we believe this creates an opportunity for Well Chip to capture unmet demand that will potentially enable the group to gain market share,” Maybank IB Research said.
It also noted that Well Chip could take on additional debt to expand its lending pool and capitalise on the demand upswing, attributable to the group’s flexible balance sheet.
“We view this positively as the sector-wide tighter lending capacity suggests that the market is not constrained by demand, but rather by lending capacity of smaller pawnbrokers,” Maybank IB Research pointed out.
