PETALING JAYA: Main Market-bound Well Chip Group Bhd is confident gold prices will continue to rise or remain the same in the current inflationary environment and heightened geopolitical concerns.
The Johor-based pawnbroker, which is seeking to raise RM172.5mil from its initial public offering (IPO), mainly deals in gold and related items as collateral to facilitate cash lending to the underserved and unserved segments of society.
“A lot of people think that people who come to pawnbroking shops are desperate – although there are instances of this but this is usually not true.
“We are actually addressing an underserved market – people who want cash quickly including business owners or investors and if they go to the bank it would probably take them a few months to get the cash.
“Our default rate is usually about 9% to 10%,” its independent chairman Mak Lye Mun said yesterday.
The company said it earns a margin upon the amount it lends out of a maximum of 2% of the borrowed amount and it will lend up to 60% to 70% of the retail value of the gold price.
Well Chip’s non-executive director Yeah Chia Kai thus said a rising gold price trend works in its favour since it takes a cut against the retail value of the gold.
The company is seeking to raise RM172.5mil in the IPO to expand its business.
The Johor-based pawnbroker is slated to go public with a market capitalisation of RM690mil based on an IPO reference price of RM1.15 by making available 150 million new shares for purchase.
Of the IPO proceeds, RM124.3mil or 72% will be allocated as cash capital for its existing 23 pawnshops, RM40mil or 23.2% for the expansion of seven new pawnshops and the balance of RM8.2mil or 4.8% to pay-off listing expenses.
The total proceeds will be utilised to finance the disbursement of more pawn loans, it said.
Of the seven new pawnshops it would like to open, five will be located in Johor and another two in Malacca.
“Our journey began 17 years ago with the opening of our first pawnshop.
“Today we operate 23 pawnshops and 4 retail outlets – we are regulated by the Housing and Local Government Ministry,” Mak said.
“We offer short-term pawn loans of up to six months to customers who pledge gold jewellery and other similar items as collateral.
“We provide quick liquidity to community members in need, helping them address temporary cashflow issues,” he added.
The company said it is optimistic of sustaining its growth rate in the near term with the funds raised from this IPO exercise and will payout at least 35% of its net profits as dividends in the first three years, post listing.
The closing date to apply for the IPO is on July 10 at 5pm, balloting will be on July 12, with the company’s listing on July 23.
Upon listing, Well Chip will float at a price to earnings multiple of 19.54 times based on financial year 2023’s earnings while its net asset per share on its enlarged share capital after going public is 61 sen.
Kenanga Investment Bank Bhd is the principal adviser, managing underwriter, joint underwriter and joint placement agent; and CGS-International Securities Malaysia Sdn Bhd is the joint underwriter and joint placement agent for this IPO exercise.According to the company’s prospectus, Well Chip’s business operations are not subject to any seasonal trends.
However, prior to a festive period, the company said it may experience an increase in the number of redemptions of pledges from our customers, followed by an increase in the number of pawn loans disbursed after the corresponding festive period.