Aspial

[money]

The stock was highlighted by its partial spin-off launching yesterday

http://info.sgx.com/webcorannc.nsf/Annou...endocument

Prior to the partial spin-off, there are already 4 bonus issues over the last 2 years. Two (2) bonus issue in 2011, another two (2) in 2012.

It seem it is a promising company. I am yet to dig-in further for more detail in AR, any buddies have further comments?

Price is too high relative to earnings.

jewellry business is so-so.. If you like its property development business, i think there are better and cheaper developers out there.. Its maxicash is quite young, no good track record

To be fair, managment knows how to please shareholders with all the bonus issues. As for its overall business, i would say rather mediocre

[Some-one]

I don't really think this is a promising company, maybe you want to look at 2nd chance properties which imo is a much better company than aspial.

aspial can hardly survive with its jewellery business which has very low margin + turnover rate. neither does the maxi-cash business looks very enticing, boasting only 1 profitable year from 2009-2011 claiming "Maxi-Cash turned profitable in FY2011 with a net profit of S$3.1 million, up from a loss of S$4.7 million in FY2009 and loss of S$1.3 million in FY2010 due to the high set up cost of the business in the early years." While they are unlikely to go bankrupt from default, I believe banks are more profitable than a pawning business. What that pulls aspial up in FY 2011 is its property development business, which seemed to be a favourite choice of diversification for many companies out there.

2nd Chance has a much more profitable gold and apparel business that's catered to a niche group. In terms of their property business, they have a track record of purchasing at the right timing. They first started buying rental shops in 1998 during the AFC when price of property fell off the cliff. They also bought during the GFC 2008 where price was once again much cheaper. While they have some debt in their balance sheet, their properties are providing them with very stable recurring rental income that's higher than interest of their debt. As for its dividend yield, there's not many companies out there offering a higher yield than second chance.

Hence, you might want to give 2nd chance properties a second chance instead of aspial

(not vested with aspial or 2nd chance)

I would choose Second Chance over Maxi-Cash or Aspial as well. It appears to me that Maxi Cash is going for IPO with just one profitable year. As such, it does not have a consistent history, unlike Second Chance. You would never know if Maxi Cash would be profitable next year and subsequent year. For a long term investor, this is scary.

[greengiraffe]

2nd chance is also a substantial holder in either aspial.

I remember reading in it in the latest aspial annual report.

I don't really think this is a promising company, maybe you want to look at 2nd chance properties which imo is a much better company than aspial.

aspial can hardly survive with its jewellery business which has very low margin + turnover rate. neither does the maxi-cash business looks very enticing, boasting only 1 profitable year from 2009-2011 claiming "Maxi-Cash turned profitable in FY2011 with a net profit of S$3.1 million, up from a loss of S$4.7 million in FY2009 and loss of S$1.3 million in FY2010 due to the high set up cost of the business in the early years." While they are unlikely to go bankrupt from default, I believe banks are more profitable than a pawning business. What that pulls aspial up in FY 2011 is its property development business, which seemed to be a favourite choice of diversification for many companies out there.

2nd Chance has a much more profitable gold and apparel business that's catered to a niche group. In terms of their property business, they have a track record of purchasing at the right timing. They first started buying rental shops in 1998 during the AFC when price of property fell off the cliff. They also bought during the GFC 2008 where price was once again much cheaper. While they have some debt in their balance sheet, their properties are providing them with very stable recurring rental income that's higher than interest of their debt. As for its dividend yield, there's not many companies out there offering a higher yield than second chance.

Hence, you might want to give 2nd chance properties a second chance instead of aspial

(not vested with aspial or 2nd chance)

[CityFarmer]

I don't really think this is a promising company, maybe you want to look at 2nd chance properties which imo is a much better company than aspial.

aspial can hardly survive with its jewellery business which has very low margin + turnover rate. neither does the maxi-cash business looks very enticing, boasting only 1 profitable year from 2009-2011 claiming "Maxi-Cash turned profitable in FY2011 with a net profit of S$3.1 million, up from a loss of S$4.7 million in FY2009 and loss of S$1.3 million in FY2010 due to the high set up cost of the business in the early years." While they are unlikely to go bankrupt from default, I believe banks are more profitable than a pawning business. What that pulls aspial up in FY 2011 is its property development business, which seemed to be a favourite choice of diversification for many companies out there.

I look into the AR 2011, shanrui_91 comments are right, very low margin + low turnover rate is best description of their non-property biz. Net profit margins are 2% (Jewellery) and 4% (Financial Service). Asset turn-overs are 1.3 (Jewellery) and 0.5 (Financial Service).

2nd Chance has a much more profitable gold and apparel business that's catered to a niche group. In terms of their property business, they have a track record of purchasing at the right timing. They first started buying rental shops in 1998 during the AFC when price of property fell off the cliff. They also bought during the GFC 2008 where price was once again much cheaper. While they have some debt in their balance sheet, their properties are providing them with very stable recurring rental income that's higher than interest of their debt. As for its dividend yield, there's not many companies out there offering a higher yield than second chance.

Hence, you might want to give 2nd chance properties a second chance instead of aspial

(not vested with aspial or 2nd chance)

2nd chance is in my watch list. They are slightly different in nature. Aspial is developer while 2nd chance is properties owner. But i agree with your view on 2nd chance. Developer stocks are the stock i will avoid for the time being, but definitely not for property owner esp commercial properties owner.

---

2nd chance is also a substantial holder in either aspial.

I remember reading in it in the latest aspial annual report.

Yes, Second Chance Properties Ltd is 11st top shareholder of Aspial. Holding 16.7 Mils share, 1.4% of total share, market value of 7.6 $Mils.

[CityFarmer]

The only reason Aspial attracted me is the spin-off of Maxi-Cash

More detail

- Maxi-Cash net profit is 2.9 Mils (PBT of 3.5 Mils, and tax of 17%). With the market cap of 16.8 Mils, the PE is 5.8
- Segment asset is 163.0 Mils and Liability is 117.5 Mils, the equity is 45.5 Mils. The PB is 0.4
- ROA of Maxi-Cash is 1.8% and ROE is 6.4%. Due to sudden increase of asset and equity, probably the ROA and ROE are depressed.

One interesting observation is by comparing 2010 and 2011 AR. Maxi-Cash (Financing segment) asset increases from 77.9 Mils to 163.0 Mils while liability increases from 54.8 Mils to 117.5 Mils. The equity increases from 23.1 Mils to 45.5 Mils.

All this happen almost entirely by transferring asset and liability around, the CAPEX of financing segment in 2010 is merely 1.2 Mils

Aspial loaded Maxi-Cash with favorable asset, and double the equity before spin-off. The management of Aspial is definitely want Maxi-Cash to success. It is easy to understand the reason Aspial keep 81% of Maxi-Cash share after IPO.

[shanrui_91]

The potential and volatility of the business is not yet known, thus a PE of 5.8 can either be very expensive or very cheap few years down the road.

One interesting observation is by comparing 2010 and 2011 AR. Maxi-Cash (Financing segment) asset increases from 77.9 Mils to 163.0 Mils while liability increases from 54.8 Mils to 117.5 Mils. The equity increases from 23.1 Mils to 45.5 Mils.

While the equity increases from 23.1 mils to 45.5 mil, 90% of the increase comes from the property development segment. Therefore, aspial uses capital from its property development segment to expand Maxi-cash. The rapid increase of both asset and liabilities are due to the nature of the business in the financial sector which includes brokerage and bank as they act as an intermediary. Assuming Maxi-cash has $20 in its balance sheet right now and you pawn your jewellery piece for $80. The company will book $80 in trade and other receivables (under Loans to customers in the footnote) and negative $60 in cash. The company will then have to borrow an additional $60 so that it can pay you in cash. As such, if you examine their balance sheet, the only portion of current and non-current liabilities that have risen is "Interest bearing loans and borrowings".

Assuming that the customer redeem his items, they will get to earn a total of 8.5% interest for lending to their customers for 6 months. Given that their interest rate payable for their own loans are at 1.96% pa, that will means a 7.5% gross margin for each pawn business that they undertake. After taking into account staff and rental cost, that probably will leave them with very low profit margin which is why banks alike often have low ROA but very high ROE. A high turnover is necessary to generate higher ROE, but unlike banks, they are unable to take on as much gearing. They will be able to maintain their 8.5% gross margin if they have sufficient cash in hand or interest free loan, which is probably why they injected their property development equity into the pawning business.

Do take note that under the Pawnbrokers Act in Singapore, a maximum of 1.5% interest rate per month is allowed to be charged, which brings about a huge risk if interest rate rises. If you look at their interest rate for their loans undertaken in 2010 and 2009, it is at an average of 2.5% and 2.8% which partly explain why they make a loss. In the long run, we should not expect our Sibor to remain at such a low rate.

This is also part of the reason why they are seeking to spin off the business in SGX now that they are profitable to raise interest free cash. Of course, there's no such thing as free cash though in terms of accounting they will get to earn their 8.5% gross margin, but equity always come at a cost called WACC.(btw, since they have promised to pay out 60% of profit as dividend for the 1st year, you can treat it as a non nterest-free loan) And should interest rates rise to the extent that they find it hard to maintain profitable, like REITS, expect some placement or rights issue to raise "interest-free" cash, else they have to reject customers. Given that the law only allows a maximum interest rate of 1.5% per month to be charged for the pawner, their profit margin will essentially be capped.

Another risk lies in the default of loans and hence pawn shop often loans cash at around 60-70% of the valuation of the item. Under the Pawnbrokers Act again, any object that has not been redeemed within 6 months will be sent to a public auction. In the case that bid received is lower than the 60%+ 8.5% interest rate, the pawn shop will then have to write off part of the receivables. However, should the bid exceed the 60%+ 8.5%+ expenses incurred, the surplus will be returned to the person who has pawned off the item.

They do have a secondary business of retailing and trading of 2nd-hand jewellery which I am not too sure on though I don't think it is worth much excitement about.

To conclude, you can call them a "defensive" stock, given that they will get more customers and lower interest rate during a recession. However, when the economy recovers ....

[Nick]

Aspial Press Release:

The Group’s revenue increased significantly from approximately S$10.0 million in FY2009 to S$54.9 million in FY2010 and S$87.7 million in FY2011, representing a compounded annual growth rate (“CAGR”) of about 195.7% between FY2009 and FY2011.

Maxi-Cash turned profitable in FY2011 with a net profit of S$3.1 million, up from a loss of S$4.7 million in FY2009 and loss of S$1.3 million in FY2010 due to the high set up cost of the business in the early years.

Percentage revenue contributions from Pawnbroking and Trading of Pre-Owned Jewellery and Watches for FY2011 were 16.3% and 83.7%, respectively.

Interestingly, pawnbroking isn't the main revenue driver

[shanrui_91]

Aspial Press Release:

The Group’s revenue increased significantly from approximately S$10.0 million in FY2009 to S$54.9 million in FY2010 and S$87.7 million in FY2011, representing a compounded annual growth rate (“CAGR”) of about 195.7% between FY2009 and FY2011.

Maxi-Cash turned profitable in FY2011 with a net profit of S$3.1 million, up from a loss of S$4.7 million in FY2009 and loss of S$1.3 million in FY2010 due to the high set up cost of the business in the early years.

Percentage revenue contributions from Pawnbroking and Trading of Pre-Owned Jewellery and Watches for FY2011 were 16.3% and 83.7%, respectively.

Interestingly, pawnbroking isn't the main revenue driver

thanks for pointing it out, I can't believe that it will be such a huge mistake to miss out the last page of the press release.

Very interesting that they don't depend on pawnbroking to drive revenue. I didn't know that a 2nd hand trader can earn such a high revenue.

or could it be an error since it will defeat aspial's original aim of providing greater resilience to their earning?

[freedom]

I don't think it is 2nd hand trader, rather the stuff is probably from its pawnbroking.

Essentially, it could be that the company is profiting from trading pawned stuff from its pawnbroking business.

from what described above, I sense that the business model depends on the future value of the pawned stuff are higher than its present value.

[shanrui_91]

I don't think it is 2nd hand trader, rather the stuff is probably from its pawnbroking.

Essentially, it could be that the company is profiting from trading pawned stuff from its pawnbroking business.

from what described above, I sense that the business model depends on the future value of the pawned stuff are higher than its present value.

they are not allowed to trade pawned stuff, its against the law. The act states that after 6 months in which the pawner fails to pay, it will be sold in a public auction which is the advertisement you see in newspaper once in a while. (I heard you can get really cheap stuff there since some of them are loots surrendered by the police)

90% of pawned products are jewellery or gold. http://www.maxi-cash.com.sg/images/news_article-bt.jpg

you can consider it trading since they are buying 2nd hand product and selling it to customer or retailer. If you see the inter-segment revenue, there's a $3.37m under the financial service