Money Talk: Singapore pawnbrokers, Tat Hong Holdings

SINGAPORE - Stay up to date on market chatter with our picks of the latest broker research reports, compiled by The Straits Times Money Desk.

1. Singapore pawnbrokers

Broker: OSK-DMG

Singapore pawnbrokers were the traditional banks for the poor, but no more. A profile change, technology advancement and a modernised industry have made it more attractive to the younger generation.

With the growing presence of players with outlet chains, the number of pawnshops in Singapore has risen to over 214 at present from 138 in 2009. The number of pledges received at Singapore pawnshops and loans disbursed by pawnshops have risen about 46.9 per cent and 343.8 per cent respectively between 2007 and 2012.

With instant cash approval and relatively lower interest rate than credit card loans, we expect loan disbursement from pawnbrokers to continue growing.

Last year was a challenge due to two steep corrections in gold prices, totaling 28 per cent, which caused earnings to plunge. We expect gold prices to remain stable this year and believe that we will see a turnaround in Singapore's pawn-broking industry in 2014.

ValueMax is our preferred pick in the sector due to its cheaper valuation compared to its peers, its greater growth potential from expansion into Malaysia and high-value pawnbroking, and a fixed dividend policy.

2. Tat Hong Holdings

Broker: OCBC

Tat Hong's FY2014 revenue came in below our estimate and consensus by 4.5 per cent and 1.7 per cent respectively, as it declined 22 per cent to $156 million.

Net profit dropped by a proportionately larger 53 per cent to $33.8 million. When adjusted for one-off items in Q4 FY2014, full-year net profit would have been $37.1 million - 2.8 per cent below our estimate but 14.2 per cent below consensus.

The sharp drop in net profit is attributable to a slowdown in business activities as well as lack of operational efficiency when scaling down.

Management shared a cautiously optimistic outlook for Tat Hong's bottom line in FY2015 as they expect better performances from its crane rental and general equipment rental divisions, and lower operating expenses as staff strength is reduced.

We derive a new fair value estimate of $0.89 (from $0.72 previously) and maintain Hold.