Outlet expansion to fuel Well Chip prospects

PETALING JAYA: Well Chip Group Bhd appears to be on track for stronger earnings growth from the financial year ending Dec 31, 2027 (FY27) as the company’s outlet expansion gathers pace, while disciplined lending should keep asset quality risks manageable despite recent weakness in gold prices.

The pawnbroking group is also set to strengthen its capital structure as it funds the rollout of 12 new outlets through a proposed rights issue and borrowings.

Kenanga Research said the group secured conditional approvals from the Housing and Local Government Ministry for six additional outlets in December 2025 and another six in May 2026, taking its planned expansion pipeline beyond its existing 27 outlets.

The 12 outlets would be opening progressively, with up to two targeted for the third quarter ending Sept 30, 2026 (3Q26) and another two by year-end, including Well Chip’s foray into Melaka.

The remaining outlet openings would be staggered across 2027 and 2028.

“We have pencilled in these outlets to contribute more meaningfully only from FY27, given the outlets take 12 months at the earliest to break even,” It expects near-term earnings to remain supported by Well Chip’s core pawnbroking business.

The RM51.8mil first-half (1H26) net profit represented 49% of the brokerage’s full-year forecast, while the 5.1 sen dividend per share paid for the period keeps the group on track to meet its expectations.

Pawnbroking revenue rose 49.4% year-on-year (y-o-y) in 1H26, driven by a 45% y-o-y increase in receivables amid higher gold prices. As retail sales softened, pawnbroking accounted for 57% of revenue, up from 45% in 1H25, lifting gross profit margin to 63% from 55%.

Although loans disbursed fell 12% quarter-on-quarter (q-o-q) from the elevated 1Q26 base, outstanding loans still grew 6% q-o-q and 45% y-o-y, suggesting longer borrowing durations and continued support for profitability.

Kenanga Research also appears less concerned about loans disbursed during the gold price peak, noting that Well Chip had reduced the loan-to-value ratio to 75% to 80% from its usual maximum of 85%. This provides a buffer against the roughly 20% decline in gold prices from their peak.

“We came away from a briefing assured that its disciplined approach of slightly tightening underwriting due to the US-Iran conflict provides a buffer for any creep-up in loan delinquency, which we expect to stay manageable as the gold price decline has somewhat stabilised,” it said.

Kenanga Research maintained an “outperform” call and a RM2 target price based on an unchanged price-to-book value of 1.6 times. It expects the proposed rights issue, subject to EGM approval, to be completed around late October, with borrowings subsequently supporting expansion.

“Well Chip is a standout against its listed pawnbroking peers, with a three-year earnings compounded annual growth rate of 50%,” the research house said.