The  new  business  segment.  ValueMax  has  already  commenced  its new  business  of  accepting  properties  as  collateral  after  obtaining  its moneylender's  license.  Management  has  highlighted  that it  will  charge interest rates of around 1% per month, lower than its u sual pawnbroking rates but still expects to enjoy a rich gross margin of around +70%. In addition, properties would have a 60% loan-to-value (LTV), which means that only a maximum loan of 60% of the pledged property value can be obtained, leaving the company with an ample 40% buffer in the event of any default scenarios.

Key  loan  book  and  earnings  driver.  We  expect  ValueMax  to  add conservative  estimates  of  about  SGD25m  and  SGD30m  of  loans  from this new business segment in FY15 and FY16 respectively, which  would boost our original net profit after tax (NPAT) estimates for the two years by  17%  each.  Going  forward,  we  also  expect  potential  strong  EPS growth of 36.1% and 15.6% in FY15 and FY16 respectively, coupled with new pawnbroking outlets being opened in Malaysia and Singapore.

BUY, with a higher TP of SGD0.60 (1.9x FY15F P/BV).  Even though ValueMax  has  already  started  its  moneylending  arm,  we  only  expect earnings  to  be  impacted  positively  in  FY15  onwards  and  have  revised our NPAT projections accordingly. In addition, we decided to peg our TP to its FY15 P/BV to reflect this new earnings-accretive business driver, which  results  in  our  TP  rising  to  SGD0.60  from  SGD0.56, based  on  a 1.9x  FY15  P/BV.  The  stock  is  now  trading  at  a  13.7x  FY15F  P/E  and 1.4x  FY15F  P/BV,  which  we  feel  is  at  a  substantial  bargain  compared against its peers. Our SGD0.60 TP implies a potential 36% upside from its current price. Maintain BUY

Source: OSK-DMG