• 1Q14 revenue increased 46%y-y at S$19.2m, due to increase in trading from disposal of accumulated pre-owned jewellery and watches deemed unsuitable for retail sales.
• 1Q14 profit was lower 72%y-y at S$0.4m, due to higher A&P expenses as well as higher rental and related costs for new outlets.
• Downgrade to “Neutral” with revised TP of S$0.335, in view of 1Q results and uncertainties ahead.

MoneyMax announced its 1Q14 results on 12 May 2014. Increase in revenue was mainly lifted by higher trading revenue on higher disposal of pre-owned jewellery and watches accumulated over past several months. Gross profits had a slight drop of 1.8%y-y at S$5.4m despite higher revenue as trading of pre-owned jewellery and watches fetched lower yields, compared to retail. Gold prices had not lifted much from 6 months ago, which hardly helped to lift up gross profits. Net profit declined on higher expenses from advertising and promotions (A&P) and costs related to several new outlets opened since beginning 2014.

Management shared that A&P expenses would remain at similar level until 2Q14, and are expected to be lower thereafter. Going forward, Moneymax would remained focused on expanding its retail outlets at strategic locations, which would likely lead to increase in market share from existing traditional pawnshops.

How do we view this

We lowered our estimates to reflect 1Q14 results, catering for higher expenses and uncertainty in gold prices outlook. Each new outlet incurs several months of rental expenses in advances (due to duration from obtaining lease for outlet till approval of pawnshop license) but would likely contribute to growth in the longer term as they reach out to a wider customer base.

Investment Action

We adjust our forecasts, lowering our FY14F NPAT. Based on DCF valuation, we derived a revised TP of S$0.335. We downgrade our rating to “Neutral” in view of 1Q14 earnings and mentioned headwinds in the immediate to short-term.

Source: Phillip Securities Research - 15 May 2014