2Q14 has  proven to be  an  inflection point for Valuemax,  with its  2Q14 net profit surging 36.7% y-o-y to SGD2.5m. Revenue climbed steadily by 18% y-o-y to SGD82.8m  as  the retail segment improved. Going forward, we  continue  to  expect  strong  a  3Q  and  4Q.  Factoring  in  higher  costs from  the  opening  of  its  three  new  pawnshops  in  June-July,  we  lower our  FY14  net  profit  estimate  by  8%  to  SGD12.3m.  Maintain  BUY  and SGD0.56 TP. 

Turnaround  firmly  in  place.  Helped  by  recovering  and  stable  gold prices  since  the  end  of  last  year,  ValueMax  Group  (Valuemax)  saw  a firm turnaround in  2Q14 from  a plunge in gold prices in FY13. Its 2Q14 net  profit  surged  36.7%  y-o-y  to  SGD2.5m,  while  its  topline  improved18.8%  y-o-y  to  SGD82.8m  on  increased  contributions  from  retail  and trading of pre-owned jewellery and gold business, in line with estimates. As  gold  prices  plunged  in  both  April  and  June  last  year,  we  expect  a 
stronger 3Q and 4Q going forward.  

Expansion plans up to speed. With the opening of three  pawnshops in Singapore  in  the  last  two  months,  namely  in  Bukit  Batok,  Yishun  and Punggol,  as  well  as  a  pawnshop  acquired  in  Bedok,  Valuemax's  total number  of  outlets  increases  from  18  to  22.  In  Malaysia,  its  pawnshop outlet  in  Taman  Universiti,  Johor,  has  commenced  pawnbroking operations  in  June  this  year,  with  two  other  outlets  undergoing renovation  at  the  moment.  Once  ready,  the  group  will  have  a  total  of eight outlets in Malaysia. 

Maintain BUY with  a  SGD0.56  TP.  With the opening and acquisition of new outlets previously not included in our forecasts, we have factored in higher  costs,  which  lowers  our  FY14  net  profit  estimate  by  8%  to SGD12.3m.  Going  forward,  with  the  turnaround  previously  forecasted now firmly in place, we remain bullish on Valuemax and maintain it as our Top Pick for the sector. We continue to believe that  the company will continue  to  outperform  its  peers  due  to  its  extensive  experience  in pawnbroking  as well as  the  solid  customer base  it has  already built up. Maintain BUY, with our SGD0.56 TP pegged to 1.9x FY14 P/BV

 

Source: OSK-DMG