KUALA LUMPUR (Aug 29): Pawnbroking service provider, retailer and trader of gold and luxury products Evergreen Max Cash Capital Bhd (EMCC), which launched its prospectus for its upcoming initial public offering (IPO), aims to achieve a profit after tax (PAT) of RM15.6 million for the financial ended December 31, 2023 (FYE2023).

It seeks to maintain the PAT target until FYE2026. For FYE2022, its actual PAT of RM20.1 million exceeded its target of RM13.3 million.

The company aims to list on the ACE Market of Bursa Malaysia on Sept 26.

“This IPO exercise is a crucial part of our long-term strategy as it would enable us to raise RM64.2 million to finance the expansion of our pawnbroking business,” EMCC executive director and group managing director Datuk Low Kok Chuan said at the prospectus launch ceremony in Kuala Lumpur.

Data from the Independent Market Research report by Providence Strategic Partners Sdn Bhd reveals that the pawnbroking industry in Malaysia is expected to grow to RM12 billion in 2023 from RM10 billion in 2021, at a compound annual growth rate of 5.9%.

Low said that in order to capitalise on the future demand for pawn loans, EMCC seeks to utilise RM30 million (46.7%) of the IPO proceeds as additional cash capital for its pawnbroking business and RM20 million (31.1%) to open up to five new “Pajaking” pawnshops in Kuala Lumpur, Selangor and Pahang by the end of 2024.

The remaining proceeds of RM14.2 million (22.2%) will be used for the repayment of bank borrowings, the group's working capital purposes and to defray listing expenses.

“This expansion plan would enable the scaling up of our pawnbroking business, capture a larger market share and [solidify] our brand visibility,” Low said.

EMCC's IPO comprises a public issue of 267.6 million new ordinary shares in EMCC, or 24% of its enlarged issued shares, and an offer for sale of 43 million existing shares, or 3.9% of its enlarged issued shares, to selected investors by way of placement.

Of the 267.6 million new shares to be issued, 55.7 million shares will be made available for application by the Malaysian public via balloting; 27.9 million shares for its eligible directors and employees as well as persons who contributed to the success of the group; 44.6 million shares by way of placement to selected investors, while the remaining 139.4 million shares have been earmarked for selected Bumiputera investors approved by the Ministry of Investment, Trade and Industry.

For the financial year ended December 31, 2022, net profit was RM20.1 million, representing a CAGR of 193.3% from RM800,000 in FY2019. Revenue was RM67.2 million, reflecting a CAGR of 65.6% from RM14.8 million in FY2019.

From an annual PAT margin of 5.4% in FYE2019, EMCC brought the figure to 25.9%, 19.6% and 29.8% in the subsequent years.

Established in 2012, EMCC is principally involved in the pawnbroking business via its network of 22 “Pajaking” pawnshops in Kuala Lumpur, Selangor, Negeri Sembilan and Pahang.

To complement its pawnbroking business, the group is also involved in retail and trading of gold and luxury products, while offering pawnbroking consultancy and IT solutions services to third-party pawnbrokers who are “not in direct competition with Pajaking pawnshops”.

The pawnbroking business follows a revenue model where monthly interest is based on pawn loans of 1.5% to 2%, whereas the gold and luxury products retail and trading division entails the one-off sales of new and pre-owned gold and luxury products, including unredeeemed pledged items from the pawnbroking segment.

Channels for the gold and luxury segment include two “Cahaya Gold” retail outlets in Kuala Lumpur and one in Selangor, social media and e-commerce platforms, and direct to gold trading companies, scrap gold collectors and luxury product retailers. In addition, it also sells to end customers.

For FY2022, gold and luxury products retail and trading contributed 56% to the group's revenue, followed by pawnbroking (42%) and pawnbroking consultancy and IT solutions (2%). Pawnbroking, however, made up 88% of gross profit, while gold and luxury products as well as pawnbroking consultancy contributed 6% each.

“We are looking for suitable locations for our new pawnshops. If we are not able to open those five new shops, we will acquire them. In every community, there will be these pawnships serving those areas,” EMCC non-independent executive director Low Kai Loon told reporters.

“We believe this to be a recession-proof business as there will always be that percentage of people who will need these financial services, namely the unbanked and underbanked population,” he said.

Kai Loon said EMCC's target market would predominantly be the Malay market due to the said population's liking for gold products.

"To increase our market visibility of gold and luxury products' retail and trading business, we will increase our efforts in online advertising and promotions to enhance our digital presence."

EMCC intends to distribute an annual dividend of 20% of its after tax profit attributable to owners of the company.

Applications for the IPO are open and will close at 5pm on September 12. Mercury Securities Sdn Bhd is the principal adviser, sponsor, underwriter and placement agent for the IPO exercise.