Broker: Maybank Investment Bank Berhad
Date of Report: May 28, 2025

Well Chip Group Surpasses Expectations: Strong 1Q25 Fuels Bullish Outlook for Malaysia’s Leading Pawnbroker

Overview: Well Chip Group Delivers Impressive 1Q25 Results

Well Chip Group Bhd, a prominent player in Malaysia’s pawnbroking and retail & trading sector, has posted stellar results for the first quarter of FY25. The company’s core earnings exceeded analyst expectations, driven by robust performance in both its core business segments. Maybank Investment Bank Berhad maintains its BUY rating and a target price (TP) of MYR1.43, reflecting a strong growth outlook and undervalued share price.

1Q25 Financial Performance: Outpacing Forecasts

• 1Q25 net profit surged 50% year-on-year, reaching MYR17.9 million, representing 32% of the full-year forecast.
• Quarter-on-quarter, net profit was up 19% despite a minor 3% drop from the previous quarter, primarily due to MYR3.5 million in listing expenses incurred in 4Q24.
• No dividend was declared for the quarter.

The outstanding quarterly performance was mainly attributed to higher loans disbursed and margin expansion. Gross profit margin expanded by 11.6 percentage points year-on-year, underscoring improved operational efficiency and cost controls.

Pawnbroking Remains the Core Growth Driver

• Pawnbroking division gross profit soared by 43% year-on-year due to increased loans and wider margins.
• Gross profit margin for pawnbroking expanded by 7.1 percentage points year-on-year, supported by lower operating costs.
• This segment contributed 75% of total gross profit for the quarter, slightly up from 74% a year ago.

The retail & trading (RT) business also improved gross profit by 30% year-on-year, despite a 4% decline in revenue, as improved cost efficiency countered weaker scrap gold sales. RT accounted for 25% of the group’s gross profit.

Strategic Expansion Plans to Sustain Growth

• Well Chip completed the acquisition of three pawnshops in Perak in May 2025.
• Management is prioritizing further expansion, targeting new outlets in Johor and Melaka.
• The goal is to open seven new pawnshops by end-FY26, with at least two launching in FY25.

These initiatives are expected to drive sustainable growth and reinforce Well Chip’s market leadership in the pawnbroking sector.

Valuation: Attractive Upside Versus Peers

• At a forward PE of 12.4x (FY25E), Well Chip is trading below the Malaysian peer average of 19.4x.
• Peers include Evergreen Max Cash Capital Bhd (EMCC) and Pappajack Bhd, both unrated but used for comparative purposes.
• Non-bank financial institutions (NBFIs) in Malaysia average 12.8x PE for CY25E, but Well Chip commands a 20% premium due to superior loan quality and gold/luxury watch collateralization.
• Target price is based on 15.4x FY25E PE.

Key Financial Highlights and Forecasts

Comprehensive Risk Assessment

• Cybersecurity: Exposure to data breaches, malware, and hacking.
• Gold Price Volatility: Fluctuations in gold prices could impact collateral values.
• Regulatory and Transactional Risks: Potential for unlawful or suspicious pawn transactions.
• Capital Requirements: High cash requirements may constrain growth.
• Physical Security: Risks associated with the safekeeping of cash and valuables.

Peer Comparison: Non-Bank Financial Institutions (NBFIs)

Key Ratios and Operational Metrics

• Revenue growth is forecast at 6.3% (FY25E), tapering to 4.4% by FY27E.
• EBITDA margins continue to strengthen, projected to reach 36.6% by FY27E.
• Pretax and net profit margins are both above 23%, reflecting operational efficiency.
• Return on average equity (ROAE) is expected to stabilize around 12.5-12.7% over FY25E-FY27E.
• Net gearing drops sharply from 88.5% (FY23A) to a more comfortable 18-21% range going forward.
• Free cash flow yield and dividend yields remain healthy, with payout ratios at 35% from FY25E onwards.

Receivables days remain high, reflecting the longer tenor and secured nature of pawnbroking loans, while inventory days are expected to decline as operational efficiencies improve.

Analyst Outlook: Buy Rating and Positive Momentum

• BUY rating maintained with 12-month target price of MYR1.43, representing a 24% upside from MYR1.15.
• Growth momentum is supported by a clear expansion strategy and industry-leading margins.
• Well Chip’s quality of collateral, cost discipline, and market position justify a valuation premium over peers.

The company’s strong 1Q25 performance, promising expansion pipeline, and prudent risk management make Well Chip Group a compelling investment in Malaysia’s non-bank financial sector.

Conclusion: Well Chip Group Positioned for Continued Success

With its robust financial performance, ongoing expansion, and a clear competitive edge in loan collateralization and operational efficiency, Well Chip Group is poised for further growth. Investors seeking exposure to Malaysia’s thriving pawnbroking and retail financial services sector should keep a close eye on this rising star.