KUALA LUMPUR: JOHOR-based pawn broker Well Chip Group Bhd saw a significant debut on the main market of Bursa Malaysia today.
The stock, which saw an oversubscription rate of 12.87 times. opened at RM1.65, marking a 43.47 per cent increase from its initial public offering (IPO) price of RM1.15.
Rakuten Trade Sdn Bhd is confident that Well Chip will grow its earnings per share (EPS) by 15 per cent compound annual growth rate (CAGR) from the financial year 2024 to 2026 (FY24-FY26).
This is given its geographical expansion plans, robust growth of pawn loans, and shared synergy with parent company ValueMax Group.
Rakuten has kept a "buy" call on Well Chip, with a fair value of RM1.90.
"Well Chip's loan book performance is equally impressive, as total pawn loans disbursed have nearly doubled from RM508 million in FY20 to RM991 million in FY23.
"It was mainly supported by only approximately 50 per cent growth in total cash capital (from RM197 million in FY20 to RM307 million in FY23), signifying improved capital efficiency.
"With the allocation of RM124.3 million from the IPO proceeds for the purpose of cash capital, we foresee over 50 per cent growth in the loan book coupled with profitability margin expansion," it said in a note today.
The firm noted that despite its Malaysian origin, Wellchip is a sister company of Singapore Exchange (SGX)-listed ValueMax Group.
Thus, it benefits from being able to tap into the ValueMax Pawnbroking System for operational synergies that help Wellchip effectively manage pawn transactions, the issuance of pawn tickets, and the management of pledges.
Therefore, Rakuten said Well Chip achieves operational excellence relative to its peers, namely higher revenue per pawnshop and comparable pretax margins.
In terms of investor reward, Wellchip is targeting a dividend payout ratio of at least 35 per cent from its earnings for the first three financial years post-listing.
Based on Rakuten's estimates, Well Chip is expecting to pay dividends of 2.3sen and 2.8sen per share for FY24 and FY25, translating into dividend yields of two per cent and 2.4 per cent respectively.
It said that post-listing, the company's net gearing ratio is expected to improve to 0.79 times from 1.32 times.
Well Chip's pawnbroking business is supported by a network of 23 pawnshops and four retail outlets, all of which are located in Johor.
The company is touted as the largest pawnbroker in Johor, with an estimated local market share of 36 per cent.
That said, Wellchip intends to geographically expand further, having earmarked RM40 million from the IPO proceeds to establish seven new pawnshops over the next two years, of which five will be located in Johor and the other two will be in Melaka.
In the longer term, the group intends to expand its pawnbroking network from the southern to the northern regions of Peninsular Malaysia, namely Negeri Sembilan and Melaka.