Growth of Pawnshops Fuelled by Casinos?

An article by Bloomberg “Rolex for Casino Cash Fuels Singapore Pawnshop Growth” in Jun 2014 touched on the proliferation of pawnshops in Singapore since Singapore’s 2 casinos opened for business, depicting how seemingly unrelated industries on the surface have benefited from the emergence of the former.

Impact of Casinos on Pawnbrokers

Yeah Lee Ching, Executive  Director of ValueMax Group Ltd (SGX:T61) recalled a customer that walked into her pawnshop and pledged a S$10,000 diamond-studded gold Rolex watch allegedly to bankroll her casino activities!

Background on 2 of Singapore’s Casinos:

1)    Marina Bay Sands was developed by Las Vegas Sands Corp (NYSE:LVS) with their casino opening in Apr 2010

2)    Resort World Sentosa was developed by Genting Singapore PLC (SGX:G13) and their casino opened in Feb 2010

Both casinos have an implied duopoly with exclusive licenses to operate in Singapore for at least the first 10 years. At the moment, both licenses would run up to 30 years.

Ivan Ho, the president of Singapore Pawnbrokers’ Association mentioned that since the opening of the aforementioned casinos in 2010, about 20% of the increase in pawnbroking was driven by clients raising money for their gambling requirements with the rest coming primarily from business owners and low-income individuals deprived of liquidity from conventional avenues.

Introducing the Singapore’s Listed Players

1)    ValueMax Group Ltd

2)    Maxi-Cash Financial Services Corp Ltd (SGX:5UF)

3)    MoneyMax Financial Services Ltd (SGX:5WJ)

ValueMax, Maxi-Cash and MoneyMax dominated the Singapore pawnbroking industry, owning close to 40% of all pawnshops in the Lion City. Maxi-Cash was the first of the 3 to be listed on the Catalist in Jun 2012 followed by MoneyMax in Aug 2013. ValueMax was the latest to join the party in Oct 2013 and it was also the first of the group to get listed on the SGX Mainboard.

DMG & Partners Securities Pte reportedly mentioned that the number of pawnshops in Singapore almost doubled since 2008 to a current figure of 214 (2008:114); a CAGR of over 11% in the past 6 FY.

How Does the Pawnbroking Business Work?

A pawnbroker is essentially in the business of offering secured loans to people with items of personal property used as collateral. The word pawn was derived from the Latin pignus, for pledge, referring to the collateral.

When an item is pawned for a loan, the pawner may redeem it within a certain contractual period for a pre-determined amount. If the loan is not fulfilled within the contractual period that said item would be offered for sale by the pawnbroker.

How a pawnbroker differs from financial institutions would be the accounting for a defaulted loan. Since the pawnbroker has physical possession of the item and may recoup the loan value through the sale of the said item, the customer would not be in default of the loan and thus would not affect their credit records. Another revenue source would be the resale of items sold directly to the pawnbrokers.

Value In Action

Although casinos impact the growth of pawnbrokers, the author was of the opinion that more work has to be done to find out about the other 80% growth contributors to the pawnbroking industry with allegedly only about 20% of the increase driven by clients raising money for their gambling requirements.

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The information provided is for general information purposes only and is not intended to be any investment or financial advice. All views and opinions articulated in the article were expressed in Cheong Mun Hong’s personal capacity and do not in any way represent those of his employer and other related entities. Cheong Mun Hong doesn’t own shares in any companies mentioned above.

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