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Consolidated Statements Of Profit Or Loss And Other Comprehensive Income
Balance Sheet
Review of the Group' s Performance
3Q2016 vs 3Q2015
Revenue
The Group' s revenue declined from $68.5 million in 3Q2015 to $59.8 million in 3Q2016. Revenue from retail and trading of pre-owned jewellery and gold business decreased by $10.9 million while revenue from pawnbroking increased by $0.7 million. Revenue contribution from the moneylending business increased by $1.4 million in 3Q2016.
Cost of sales
The Group' s cost of sales decreased from $61.7 million in 3Q2015 to $50.0 million in 3Q2016. Cost of goods sold for retail and trading of pre-owned jewellery and gold business decreased by $11.7 million, which is in line with the decrease in revenue in this segment, while interest cost for both pawnbroking and moneylending remained stable.
Gross profit
Overall gross profit increased by $2.9 million in 3Q2016 compared with the same period in FY2015. Gross profit margin improved from 10.0% in 3Q2015 to 16.4% in 3Q2016.
Other operating income
Other operating income was $0.7 million in 3Q2016 compared with $0.4 million in 3Q2015. The higher other operating income was mainly due to the increase in facility fees income from moneylending of $0.2 million.
Administrative expenses
Administrative expenses comprise mainly employee benefits expense, rental expenses, depreciation expenses, legal and professional fees and insurance premiums. The increase in administrative expenses from $4.2 million in 3Q2015 to $5.1 million in 3Q2016 was mainly due to the increases in employee benefits expenses of $0.4 million, rental of $0.1 million, insurance expenses of $0.1 million and depreciation expenses of $0.1 million. The increase in employee benefits expenses was due to the increase in headcount and salary adjustments.
Other operating expense
Other operating expenses comprises mainly the write-off of excess consideration over fair value of interest acquired in a subsidiary of $0.1 million in 3Q2016. In 3Q2015, other operating expenses comprised provision for doubtful trade receivables of $0.5 million and foreign exchange loss of $0.2 million.
Share of results of associates
The Group' s share of results of associates increased from $0.5 million in 3Q2015 to $0.6 million in 3Q2016, due to increased contribution from the Malaysian associated companies.
Profit before tax
As a result of the above, profit before tax increased by $2.2 million to $4.9 million in 3Q2016.
Income tax expense
Income tax expense increased by $0.4 million in 3Q2016, which is in line with the increase in profit.
9M2016 vs 9M2015
Revenue
The Group' s revenue decreased from $205.8 million in 9M2015 to $192.1 million in 9M2016. Retail and trading of pre-owned jewellery and gold business accounted for the decrease of $17.8 million while revenue from the pawnbroking and moneylending businesses increased by $1.1 million and $3.0 million respectively in 9M2016.
Cost of sales
The Group' s cost of sales decreased from $185.1 million in 9M2015 to $166.4 million in 9M2016. Cost of goods sold for retail and trading of pre-owned jewellery and gold business decreased by $19.1 million, which is in line with the decrease in revenue in this segment, while interest cost for both pawnbroking and moneylending increased by $0.2 million and $0.3 million respectively.
Gross profit
Overall gross profit increased by $4.9 million in 9M2016 as compared with the same period in FY2015. Gross profit margin improved from 10.1% in 9M2015 to 13.4% in 9M2016.
Other operating income
Other operating income was $2.2 million in 9M2016 compared with $1.4 million in 9M2015. The higher operating income was mainly due to the increase in facility fee income from moneylending of $0.4 million, rental income of $0.1 million and grant income from SME cash grant of $0.1 million.
Administrative expenses
Administrative expenses comprises mainly employee benefits expense, rental expenses, depreciation expenses, legal and professional fees and insurance premiums. The increase in administrative expenses from $12.1 million in 9M2015 to $14.0 million in 9M2016 was mainly due to the increase in employee benefits expenses of $0.9 million, rental expenses of $0.2 million, depreciation expenses of $0.1 million and legal and professional fees of $0.1 million. The increase in employee benefits expenses was due to the increase in headcount and salary adjustments. Rental expenses increased mainly due to the inclusion of new outlets in the second half of FY2016 as well as revision of rental rates upon renewal of leases.
Other operating expenses
Other operating expenses decreased by $1.2 million mainly due to the decrease in allowance for doubtful trade receivables of $1.2 million in 9M2016.
Share of results of associates
The Group' s share of results of associates increased from $1.2 million in 9M2015 to $1.7 million in 9M2016, due to increased contribution from the Malaysian associated companies.
Profit before tax
As a result of the above, profit before tax increased by $4.3 million to $13.3 million in 9M2016.
Income tax expense
Income tax expense increased by $0.3 million, which is in line with the increase in profit.
Review of the Group' s Financial Position
Non-current assets increased by $44.4 million from $53.7 million as at 31 December 2015 to $98.0 million as at 30 September 2016. The increase comprises mainly increases in trade receivables from the Group' s moneylending business of $29.9 million, property, plant and equipment of $14.3 million and investment in associates of $0.2 million.
Current assets increased by $40.5 million from $219.4 million as at 31 December 2015 to $259.9 million as at 30 September 2016. This was mainly due to the increase in trade and other receivables of $31.2 million and increase in inventories of $13.6 million. These were partially offset by the decreases in prepaid operating expenses of $0.6 million and cash and bank balances of $3.8 million.
Current liabilities increased by $17.1 million from $111.6 million as at 31 December 2015 to $128.8 million as at 30 September 2016 as a result of increase in interest-bearing loans and borrowings of $16.8 million, increase in income tax payable of $0.4 million and increase in other liabilities of $0.4 million. This was partially offset by a decrease in trade and other payables of $0.5 million.
Non-current liabilities increased by $60.2 million as a result of the issuance of $50 million bonds and property loan on the Waterloo premises taken up in 2016.
Equity comprises share capital, retained earnings, capital reserve, merger reserve and non-controlling interests. Equity attributable to owners of the Company increased from $155.5 million as at 31 December 2015 to $162.0 million as at 30 September 2016 mainly due to the increase in retained earnings.
Review of the Group' s Cash Flows
3Q2016 vs 3Q2015
In 3Q2016, the net cash used in operating activities was $11.0 million. This comprises operating cash flows before working capital adjustments of $6.0 million, adjusted by net working capital outflow of $15.4 million. In 3Q2016, the Group received interest income of $0.1 million, with net income tax paid of $0.4 million and interest expense paid of $1.4 million. The net working capital outflow was a result of the increase in trade and other receivables of $14.0 million and the decrease in trade and other payables of $3.2 million. These were partially offset by the decrease in inventories of $0.7 million and the increase in other liabilities of $1.1 million.
In 3Q2016, the net cash used in investing activities amounted to $3.6 million comprising mainly the net cash outflow on acquisition of subsidiary of $3.4 million and purchase of property, plant and equipment of $0.1 million.
The net cash generated from financing activities in 3Q2016 amounted to $15.0 million comprising proceeds from short-term bank borrowings of $17.8 million. These were partially offset by dividends paid to non-controlling interests of $0.8 million and the repayment of short-term bank borrowings of $2.0 million.
9M2016 vs 9M2015
In 9M2016, the net cash used in operating activities was $54.7 million. This comprises operating cash flows before working capital adjustments of $15.7 million, adjusted by net working capital outflow of $66.7 million. In 9M2016, the Group received interest income of $0.3 million, with net income tax paid of $1.0 million and interest expense paid of $3.1 million respectively. The net working capital outflow was a result of the increases in trade and other receivables of $51.4 million, increase in inventories of $11.9 million and a decrease in trade and other payables of $4.3 million. These were partially offset by a decrease in prepaid operating expenses of $0.6 million and an increase in other liabilities of $0.4 million.
In 9M2016, the net cash used in investing activities amounted to $18.4 million comprising net cash outflow in acquisition of a subsidiary of $6.1 million and the purchase of property, plant and equipment of $12.6 million, partially offset by dividend income of $0.2 million.
The net cash generated from financing activities in 9M2016 amounted to $70.1 million comprising the proceeds from short-term bank borrowings of $45.7 million and the net proceeds from issuance of bonds of $49.5 million. These were partially offset by the repayment of short-term bank borrowings of $18.8 million and the payment of dividends of $6.3 million.
Commentary
Gold price fluctuated between approximately USD1,200 and USD1,360 since 1 July 2016. The pawnbroking business continues to face challenges from rising operating costs and keen competition.
In September, the Group completed the acquisition of Teck Chong Pawnshop Pte Ltd, a pawnbroking business located in Ang Mo Kio. The Group will continue to explore acquisition opportunities and suitable locations to grow our network of pawnshops and retail outlets.
Contribution from the moneylending business, which is largely secured on properties, is expected to grow during the year.
 " I may need up to $42 million as a short-term loan. You can have my $70-million Good Class Bungalow as collateral." That, in brief, may well be how a super-wealthy person in Singapore contacted ValueMax Group. Singapore-listed ValueMax said in an announcement on Friday night: " The facility has a tenure of one year. Each drawdown of the facility shall be for a period of two months on a revolving basis....The facility is secured by a mortgage granted in favour of the Group over a good class bungalow at a loan-to-value of 60%." The $42-m facility at 60% of the value of the bungalow means the property is valued at $70 million. Taking, say, $1,500 psf, a $70-million bungalow would be about 47,000 sq ft in size. That' s one sprawling property which is a rarity among good class bungalows. Is the bungalow fully paid up? Likely yes, otherwise a LTV of 60% means nothing to ValueMax. In which case, this client probably is Old Money, who could have bought the property a long time ago when it cost a lot lower than today' s valuation. This should be the biggest deal ValueMax' s money-lending business, VM Credit, has secured since VM Credit was 100% acquired by ValueMax in Sept 2014. Will it significantly boost ValueMax' s profitability? It' s hard to say for sure because there is insufficient information to go on (see discussion below). (ValueMax is one of Singapore&rsquo s oldest and best-established pawnbroking chains. Established in 1988, it provides pawnbroking services, and retail and trading of pre-owned jewellery, gold and luxury timepieces. At its new HQ at Waterloo Centre, it provides private financial services such as mortgage loans for private residential and commercial properties as well as pawnbroking services for high net-worth individuals and companies.) |
There are several intriguing elements to this deal, starting with: What is the client going to use so much money for in a short time frame?Any answer would have some link to who the borrower is. Could he be some tycoon with an instantly recognisable name?
Understandably, for client confidentiality reasons, the ValueMax announcement sheds no light on this. And, when contacted by NextInsight, its management was not at liberty to divulge any information beyond what it had put into its Friday announcement.
One theory is that the money is for use as working capital of the borrower' s business. If so, the massive infusion of working capital suggests a troubled business.
That seems unlikely.
The usage is short-term, since " each drawdown is for two months on a revolving basis" .
Possibly, the money is needed by the borrower while waiting for some large cashpile (perhaps from some transaction) to arrive. This use of the money might be one-off, or it might be multiple times during the one-year tenor of the facility.
If it' s one-off, what comes to mind are property-related transactions, where bridging loans are not uncommon (though not of this gigantic size).
In those cases, bridging loans are used when you want to complete the purchase of a property before receiving the proceeds from the sale of another of your property. It' s short-term money and it comes with an interest rate higher than for normal loans.
| ValueMax | 24.5 cents |
| 52-week range | 20-30 cents |
| Market cap | S$131 million |
| PE (ttm) | 12.1 |
| Dividend yield | 3.9% |
| Net asset value | 29.6 cents/share |
| Source: Bloomberg, Company | |
What could ValueMax charge in interest rate?
One guess is that it' s 1% per month (or 12% per annum), which would work out to 1% x 2 months x $42 million = $840,000 in interest, assuming full drawdown of the facility.
That' s a nice income (before cost) for ValueMax. And if the drawdown is done multiple times in one year, the interest income would of course be larger.
Still, it is possible that a full drawdown may not be needed.
Why? Because it' s hard to imagine anyone requiring $42 million at one pop.
Anyone has other guesses? Post below.
Ah - very quiet on this thread - after all the hype! All the cyotes finished selling to the unfortunate newbies who believed the bull s**t? Perhaps the real run is coming soon.....
