Maxi-Cash: Cashing In Shrinking Profits

The largest pawnshop operator in Singapore, Maxi-Cash Financial Services Corporation (SGX: 5UF), released its Full Year 2013 results on Wednesday. Revenue for 2013 surged 12% year-on-year to a new record-high of S$113.1 million for the company. However, Maxi-Cash’s net profit plunged 47% to S$2.2 million and with the drop, came earnings per share, which declined 51.5% year-on-year to 0.47 Singapore cents.

Maxi-Cash, which went public in June 2012, offers financial services in the form of pawnbroking and the retail and trading of pre-owned jewellery and watches. As of 1 May 2012, the market share of the pawnbroking business in terms of the number of licensed pawnbrokers is approximately 13.0%, according to the company’s website. Other publicly-listed pawnbroking companies with operations in Singapore include ValueMax Group (SGX: T6I) and MoneyMax (SGX: 5WJ).

The revenue growth experienced by Maxi-Cash in 2013 was due to higher interest income from a larger pledge book in its pawnbroking business and higher revenue from its retail and trading business. Revenue contribution from the pawnbroking business rose 33.1% to $24.9 million and revenue from the retail and trading business achieved a 12.7% increase to S$88.2 million.

The net profit decline was due to higher depreciation and amortization, staff costs, and rental expense, following an expansion of its network.

As of 31 Dec 2013, Maxi-Cash had a cash balance of S$11.6 million and a total debt load of S$74 million, which incidentally, would be due within a year of the aforementioned date. The company’s total debt load is 32 times its net profit and the debt-to-equity ratio stands at 2.6 – both figures might bear some watching by investors.

The net cash used in the operating activities of Maxi-cash for 2013 was $24.4 million as compared to $43.3 million in the previous year.

The company is paying out dividends of 0.25 Singapore cents per share for the full year, a 63% fall as compared to the dividend of 0.68 cents per share paid out last year.

In a separate announcement on the same day as its earnings release, Maxi-Cash revealed that it is proposing a bonus issue of up to 93.8 million new ordinary shares on the basis of one bonus share for every five existing ordinary shares held. The rationale for doing so is to “increase the issued share capital base of the company to reflect the growth and expansion of its business, and at the same time, to reward the shareholders for their loyalty and continuing support of the company”.

Maxi-Cash last changed hands at S$0.32 on Wednesday. This translates to a historical PE ratio of 68 and a dividend yield of 0.8%, based on its 2013 results.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.