| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
A leading investment bank has initiated coverage on a prominent financial services group, assigning a BUY rating with a target price of RM0.25. This represents a significant upside of 25.0% from its last traded price of RM0.20, reflecting confidence in the company’s robust growth trajectory and strategic initiatives in the pawnbroking and gold trading sectors.
Performance Review and Growth Drivers
The group is anticipated to achieve substantial earnings growth, with projections of 47.1%, 11.2%, and 10.2% over the next three financial years. This optimistic forecast is primarily driven by strong pawnbroking activities, which saw a 41.0% increase, contributing to a 20.2% year-to-date rise in revenue. The sustained growth is supported by a rising outstanding loan book, which is expected to expand in line with elevated gold prices.
A key factor contributing to the positive outlook is the group’s ability to maintain high gross profit margins. The pawnbroking segment, characterized by costs largely confined to financing expenses, is a high-margin business that significantly bolsters overall profitability. These strong margins, coupled with anticipated robust revenue growth, are expected to effectively offset additional overhead costs associated with new outlet expansions.
Strategic Expansion and Future Outlook
The company is strategically expanding its geographical footprint, with a portion of its IPO proceeds (approximately 23.2%) allocated to outlet expansion. This initiative aims to increase the total outlet count to at least 33 by the end of FYE27F, which is expected to drive higher transaction volumes and, consequently, greater revenue.
Furthermore, the persistent strength in gold prices is seen as a significant tailwind, contributing to improved revenues across both pawnbroking and gold trading segments. This favorable market condition allows the group to benefit from higher reimbursement values per ticket, enhancing interest income.
Despite minor slowdowns in the trading of gold and luxury items, the core pawnbroking business remains resilient and continues to be the primary growth engine. The group is also committed to a dividend payout ratio of up to 35% of its profit after tax, promising attractive prospective dividend yields ranging from 2.8% to 3.4% for FY25-FY27f. The industry outlook remains sustainable, underpinned by consistent demand for immediate access to funds from the underserved population.
Challenges and Investment Risks
While the outlook is positive, potential investment risks include intense competition from numerous active pawnbrokers in the market. The business is also exposed to fluctuations in gold prices, which can impact the value of unredeemed pledges and inventory. Inherent physical security risks are associated with operating in the jewellery and gold trading sectors. Additionally, the business remains susceptible to regulatory changes that could impact maximum interest rates or operational guidelines. However, the group’s established presence and operational efficiency are expected to help navigate these challenges.
