There's a new business opportunity offering a net interest margin of more than 42%. And it's not a Ponzi scheme (we think), and it's not the mafia (we think?). It's a chain of pawnshops looking at an IPO.
According to its prospectus to the Hong Kong stock exchange, Oi Wah, which operates 12 pawnshops in Hong Kong, has enjoyed a net interest margin of more than 42% for each of the past three financial years on its pawn loans. That’s pretty spectacular, compared to blue-chip lender Bank of East Asia Ltd., which reported its full-year 2012 results Tuesday, with a NIM of 1.7% in the second-half of the year.
The company mainly provides short-term secured financing including both pawn loans and mortgage loans, according to its prospectus. Pawn loans are collateralized against personal properties such jewelry.
The company says in its prospectus that despite the high level of concentration of banks in Hong Kong, non-bank lenders such as pawnshops are attractive because they enjoy greater flexibility in terms of their loan sizes and types of collateral, as they are not subject to the same restrictions imposed by the Hong Kong Monetary Authority….
Based on its indicative price range of HK$0.75 to HK$0.98, Oi Wah is pitching its shares at 5.6 times to 7.4 times forecast price to earnings, which appears attractive. However, the paradox for its IPO is that the funds raised are intended to further develop its mortgage-loan business, which would see its mouth-watering NIM inevitably take a hit, given the company will then be competing heads-on with traditional lenders including banks.
Pawn Shop Chain Seeks Hong Kong Listing [WSJ Deal Journal blog]