Aspial

[CityFarmer]

no need to thank me. I have been tricked by its non-core pawn business too. For the market cap, it is only when I read the newspaper that I realise it is $88m.

Pawnbroking is not that good a biz model, of the $108.5 loaned out they recognise the $8.50 as the revenue which causes a higher profit margin. If you were to base on ROE, their returns are much lower than that of our 3 local banks. Another factor is that their profit margin is capped by the Pawnbroking act which states a maximum interest rate of 1.5%

The prospectus has just been released today which means that retail investors will only have 7 days to digest the information, isn't it a bit too rush?

I had a quite different view on pawn biz. Let me share my view in detail.

We are aligned on the biz model, probably not aligned on the profitability of the model. Pawnshop gave secured collateral micro-loan, with interest as income (at the moment 1% per month) and typical 6 months period. If not redeem, will goes to public auction. If should not be a problem to recover the loan.

Profitability wise. Maxi-Cash cost of capital is around 2.4%-3.3% pa (bank and other source) and 3.5% pa (overdraft facility). Interest charged is 6% per 6 months, compounded 12.4% pa. The gross profit margin is 8.9%-10%. This margin is much better than bank secured loan income.

Extra income from 2nd hand items will bring in another few %.

Probably too much number to digest, let's apply common senses to validate

Common sense #1: Credit card and overdraft biz are consider profitable biz to financial institutes. Credit card interest is 24% pa with unsecured credit (loan), bank overdraft with interest 10-15% with (un)secured credit. Pawnshop micro-loan is 12%-18% pa should be comparable.

Common sense #2: Pawnshop number increases with average of more than 10% in the last 3 years. Rationally only profitable biz attracts new participants.

Common sense #3: Pawnshop pledged loan amount increases by 80% from 2010 to 2011. (from 2.7 Bils to 4.9 Bil). It is a highly demanded service. Redeem rate (with interest) is more than 96% in 2011, so it is quite a low-risk biz.