Today I was interviewed in the morning session on Channel 8 mediacorp to discuss my views on this newly listed IPO: ValueMax, which created a bit of a hype due to a research report by SIAS research stating its potential to reach 80cts.
Whenever investing in a IPO stock, I will be assessing its potential to see if there is ability for the business to increase multiplefold within a few years or whether the earnings has growth. If not, I would not even see the stock.
The word I am looking for is "GROWTH"!
For valuemax, I think its potential is limited by its industry. This is an industry whereby growth is really limited. Pawnshop industry? Maybe we have to ask ourselves these few questions to consider investing in a IPO.
1) As a retailer, does ValueMax have the ability to increase its clients? I think it is tough as we all know this business is competitive. With 2 other listed companies, it is tough to increase more clients. Almost every good location is occupied. ValueMax does not splash on adverts like the other pawnshops. If it cannot continuously every year increase its clients, this stock might not grow much because it is regional.
2) Can Valuemax increase its number of shops? Although the company says it will, it is tough being in singapore. 17 shops already. How many can you open? I know that it has 4 outlets in malaysia, but unless they can come out with a concrete plan to expand overseas, the expansion is limited.
3) Can Valuemax increase its revenue? Not much judging by its FY audited results from 2011-2012. In fact the earnings or EPS drop in this period. An IPO that does not grow its earnings or the capability is never a good investment. If there is no growth prospect at its "exciting" infancy IPO stage, then all the more it might not happen 10 years later.
One reason for the no growth is that Valuemax is not in the industry to increase pricing anytime. They depend on people who wants to pawn their things. No price control over its products or services.
HOW TO INCREASE EARNINGS then??
That is the reason why they say they are willing to distribute 50% of the net profits as dividends! 50% of what you make???? OMG! This is a company that solely relies on trying to entice people to buy up their share price. This is the only way they ensure the shares don't drop. In fact, I never like to invest in a stock that gives up too much dividends as this shows me the company has little capability of expansion. Doesn't it have the vision of opening multiple outlets in Asia?
What I feel about ValueMax is they need to think abroad. Focusing on tiny singapore won't ever work. Of course, along the way they may branch into other businesses. But judging the business now, I seriously think they are Not the GROWING IPO company we are looking for as we always look for exciting IPO companies that can multiply their share price in years to come.
80cts target is never what I want in an IPO. I am always expecting more in an IPO.