By Samantha Chiew & Chloe Lim (The Edge Singapore)
When the pandemic hit in early 2020, and drastic measures were needed to curb the spread of the virus, most retail shops were told to shut. However, pawnshops, deemed to be providing an essential financial service, were allowed to keep their doors open throughout the different phases of lockdown and reopening.
At first, many thought that pawnbrokers were allowed to keep their doors open so that people whose jobs were affected by the pandemic could pawn their items and receive some short-term loan at a low interest rate. But this was not exactly the case. Ng Kean Seen, deputy CEO of Maxi-Cash Financial Services, tells The Edge Singapore that during the “circuit breaker”, the company’s pawnshops continued to operate, but only to give out loans or allow people to come and redeem their goods. Its retail segments were not allowed to operate.
“During this period, the government stepped in very quickly with the Job Support Scheme (JSS), and that helped. Many were found to have more money and no place to spend them. So, instead of pawning their valuables for loans, we found that redemption was very high during that time,” recalls Ng, adding that the interest in pawning items to get loans to spend came back when the circuit breaker was lifted, as consumers were allowed to go out and about and spend.
For the first time in Singapore’s history, according to the Registry of Pawnbrokers, the total number and value of redemptions exceeded that of goods deposited for more than two consecutive months, during the circuit breaker period. The number of redemptions reached a record 398,342 in June 2020, with borrowers repaying pawnbrokers $543.5 million in loans, including interest. In comparison, pawnbrokers extended loans of $467 million against 323,549 pledges received over the same period.
The way Ng sees it, it was likely because many people were uncertain about the situation back then and would rather safeguard their own assets and keep them amid such a circumstance, rather than holding cash.
“Fast forward to today, almost two years since the pandemic started in Singapore, the pawnbroking business has resumed its path and is back to the situation in pre-Covid times,” adds Ng.
With the pawnbroking business relatively stable, Ng is seeing growth in the company’s other segments and is planning for a new business segment to help drive more revenue for the company.
All that glitters is gold
Although Maxi-Cash, a subsidiary of Aspial Corp, is immediately associated with pawnbroking, it operates several other business segments such as retail, where it retails brand new jewellery and second-hand luxury goods; and the secured lending business that the group started in 2017, where it offers loans to companies mainly in Australia and the UK.
For its jewellery retail segment, Ng says that gold has always seen high consumer demand as the company offers competitive pricing and attractive jewellery designs.
“Our gold price is lower than the traditional goldsmith shop [in Singapore],” explains Ng. “At the same time, we also have pre-owned gold, which is especially attractive to people who want to invest in gold at the least cost possible so as to avoid paying GST [in the course of the transaction].”
“Gold is gold — it doesn’t matter whether it is pre-owned or new,” Ng adds.
Demand for gold, according to Ng, also exists in a low interest rate environment, where inflation is slightly elevated, making it an attractive investment class at this moment. “Unlike cash that does not give the best returns, gold has the potential for capital appreciation when its prices go up,” he says.
“To many people, investing in gold is a good hedge against inflation and is a very safe investment; something that any can keep as a high investment consideration — basically as an asset class that can appreciate in value,” he says.
However, that does not mean that selling gold comes without challenges. “The thing about commodities is that you have to add value to it before you can charge a high premium, in addition to considering the additional workmanship, design, etc,” Ng says. He clarifies that “the market continues to be competitive in light of an international spot price for gold”. This is unlike other valuable goods like diamonds.
Ng shares that the margins for gold approximate 20% per transaction, where Maxi-Cash uses its lower pricing of gold as a competitive advantage against other players. “We can afford to do that as we have other main sources of revenues, such as pawnbroking,” Ng explains. “We are not solely dependent on the sale[s] of gold to pay for everything.”
On secured lending, Ng says that it is a new and “opportunistic” business, and yet contributes a meaningful portion of the company’s revenue. “This means that if we have available funds and if it is the right timing, we will invest in it,” says Ng.
The secured lending activities are backed by parent company Aspial, which has significant experience in the property business both here and overseas, and can thus help to evaluate loan requests. “They help to look into the properties and underlying assets, then we decide if we want to lend the developers the money,” says Ng. Thus far, this secured lending business has collected back all the principal and interests from the borrowers.
Apart from growing its individual revenue segments, Maxi-Cash has also been busy with its digitalisation efforts, which include the launch of a mobile app for customers that let them renew or pay their loans on the go as well as to shop. An e-wallet function was added recently, to make buying from Maxi-Cash more seamless. Ng adds that a loyalty programme tied to the app is on the cards.
Business as usual
Interestingly for Maxi-Cash, despite the retailfacing nature of its business, it enjoyed an “extraordinary” FY2020 ended December 2020. For the year, it recorded all-time high earnings of $29.3 million, 97% higher than $14.8 million in FY2019. Revenue in the same period was 20% higher y-o-y at $262.8 million.
Just like every company in Singapore, Maxi-Cash’s bottomline was lifted by the JSS. When the pandemic struck and lots of business activities shuddered to a halt, the cash injection from the government helped the company keep its people and meet running costs. “We were very pressured at first, but we got the hang of things and we got back up quickly after,” says Ng.
However, as the pandemic lingers on, the financial markets diverged from the real economy and asset prices, including that of gold, trended higher. That means Maxi-Cash was able to enjoy higher margins from the sale of its gold products.
Ng, like many, saw gold as a good investment during the height of the pandemic. “Gold is as good as cash, but it has the potential for appreciation. It is at risk of depreciation too, but inflation can kill cash and not gold,” says Ng, adding that hedging is necessary in times of uncertainty.
Maxi-Cash rewarded shareholders with total dividends of 2.6 cents for the FY2020 period, versus a total of just 0.6 cent for the whole of FY2019.
Now that FY2020 is gone and FY2021 has ended, it is likely that with lower JSS support and tapering gold prices, the company’s earnings will be coming down from its high.
For its latest 1HFY2021 ended June 2021, Maxi-Cash saw a 20% decline in earnings to $8.0 million from $10.0 million. The company attributes the drop to the absence of JSS recorded for 1HFY2020. Revenue for 1HFY2021, meanwhile, suffered from two months of lost sales in April and May 2021 during Phase Two (heightened alert), which saw retail outlets closed to contain the Covid-19 spread. For the six months, revenue only saw a 9% y-o-y increase to $111.6 million.
Apart from the lower earnings in 1HFY2021, Maxi-Cash also declared lower interim dividends of 0.65 cent per share, compared to 1.15 cents a year ago. This is however, still higher than 1HFY2019’s 0.25 cent.
Despite the earnings drop, Ng believes that the company remains well-positioned. He says that last year’s gold prices were exceptional and hence the company was able to dish out great rewards to shareholders. 1HFY2021 was not as great as the previous year, but Ng stands his ground to continue rewarding shareholders, albeit with a lower amount. “In 1HFY2021, we paid out 70% of our profits, compared to 90% in the previous year. This year, we need to reinvest some money in the company and save some for working capital” as the company transitions into a postpandemic world, he says.
Moving forward, Ng is looking at targeted growth. “We are looking to expand only in countries that we are already operating in, because we are familiar with the market. We are not looking to expand into new markets at the moment,” he says, while reiterating that the company will be zooming in on finding prominent locations that can help boost business growth.
Apart from that, Ng explains that the company will also be beefing up its retail offerings with a new range of gold products, as well as launching several promotional campaigns. As for its secured lending business, Ng emphasises that this is certainly a growth area for the company and one to look out for.
Photo: Albert Chua/ The Edge Singapore