Gold stocks show their mettle

THE path appears bright and glittery for gold-exposed stocks as marked to market inventories continue to see gains.

Companies in this sector have seen some interest with increases in their share prices, especially since gold prices have continued to hit records on the international markets.

In the second week of September, spot gold prices rose to a fresh high of US$3,674.09 per ounce on international markets and continued to sustain those initial gains on expectations of a rate cut soon by the US Federal Reserve.

Companies which are known to hold a good amount of gold inventory include the jewellers and pawn shops.

Several such companies listed on Bursa Malaysia include jewellers Poh Kong Holdings Bhd, Tomei Consolidated Bhd and Zhulian Corp Bhd; while the biggest pawnbroker by market capitalisation on the Main Market is Well Chip Group Bhd.

But there is also the pertinent question if the recent share price gains will sustain since these are just mostly gains on marked to market inventory holdings.

These companies’ inventories are adjusted to account for the latest upward change in prices which would reflect through a higher selling price or higher price of gold or collaterals in the case of pawnbrokers.

Whether or not it translates to higher revenue depends on end demand.

It is possible that demand, especially among the consumer to purchase gold, could begin to slow should higher prices sustain today and moving forward.

Well Chip, which earns a profit by taking a cut against the retail value of the gold is seen to be having the best upward hedge should gold

prices continue to chart new peaks – since end demand from its clients might see a rise instead.

The company is the biggest pawnbroker listed on the Bursa Malaysia with a market capitalisation exceeding RM1bil at the time of writing.

Furthermore, pawnbrokers such as Well Chip earns a margin upon the amount it lends out (with the collateral – such as gold pawned by its customers) of a maximum of 2% of the borrowed amount.

A company spokesperson says it will usually lend up to 60% to 70% of the retail value of the gold price.

“Higher gold prices will enable our pawnbroker clients to pawn at a higher value.

As a group, we do not speculate on gold prices as we conduct our transactions based on prevailing market prices,” a company spokesperson says.

Gold price at record highs is expected to increase pawn loan disbursements which directly influences revenues since gold bearers can draw down higher amounts on their collaterals.

After a strong initial public offering (IPO) in July last year, Well Chip saw prolonged profit-taking and at one point, dipped below its IPO reference price of RM1.15 per share.

The shares have recouped the losses post-IPO and closed near its historical high at RM1.71 per share on Friday.

Its recently announced second quarter ended June 30, 2025 (2Q25) results have beat most analysts’ expectations on higher-than-forecast contribution from both its pawnbroking and retail & trading divisions.

Profit margins in the 2Q25 saw a year-on-year (y-o-y) improvement to 31% from 22.93% despite flattish revenues on lower operating costs and better product mix in its retail and trading division.

Apart from pawnbrokers, jewellers are also usually seen to benefit from any rise in gold price, as their inventory would be valued higher with a higher selling price.

The latest information indicates that demand is still seen sustaining despite prices at or near historical highs.

For Poh Kong, the higher gold prices appear to have helped the company improve revenue and net profit in its 3Q ended April 30, 2025.

The quarter saw the company’s revenue rising slightly by some 2.7% y-o-y to RM65.89mil while pretax profits gained 7.8% to RM66.6mil although final bottom lines were flat due to increased income tax expense y-o-y.

The company attributes the rise in gold prices to the improvement of its top and bottom lines.

Poh Kong explains in the notes to its financial statements that during tariff-induced economic disruptions, gold demand typically surge as investors seek protection against inflation and market volatility, and the metal’s role as a safe-haven asset.

Its inventories, which also consist of gold holdings, were valued higher as at April 30 at RM946.28mil against RM845.14mil a year ago.

Poh Kong will announce its 4Q25 results this month.

Meanwhile, Tomei’s 2Q25 ended June 30 also saw a y-o-y improvement in net profit and revenues by 26.5% and 16.45% respectively.

Tomei saw an improvement in all its business segments: manufacturing & warehousing; and retail in both revenue and profit margins which it attributed to the higher gold price.

It would be interesting to see whether a sustained rise in gold price will continue to translate to better financial performance for the jewellers.

The anticipated cut in the Federal Reserve interest rate and the continued economic uncertainties with geopolitical upheavals may well continue to fan the demand for gold moving forward.