JMT to Post a Better-Than-Expected Profit in 2Q, Analyst Gives TP at ฿40

Analyst expected JMT Network Services Public Company Limited (JMT) to be benefited from economic slowdown, as it could add a huge volume to portfolio of debt collection as high as 60 billion baht. The revenue growth is at 25% p.a. and yield is 2.0X over BAM, giving a target price at ฿40/share. While sources close to matter said JMT 2Q20 core profit will beat an expectation.  

 

KGI Securities expected JMT would benefit from the faltering economy, as it can gain more business volume from debt collection services and shop around among the flood of NPLs anticipated to come in 2H20. JMT is expected to spend ฿5.0bn/฿6.5bn to purchase NPLs in 2020/2021, up from ฿2.6bn/฿3.4bn in 2018/2019. 

 

The faltering economy should also provide a excess return at higher than historical 3 year average (CAGR earnings growth of 32% in 2016-2019). KGI applied PE 35x of fully-diluted EPS of JMT-W2 conversion (or at around long-term mean), which implies PEG 1.0x , to reach a 2021 target price of ฿40/share. 

 

KGI pointed out JMT as counter cyclical growth profile. Around 90% of JMT’s business is in debt collection (15% of revenue) and distressed asset management (75% of revenue), which benefit from volume growth and margin expansion when the economy is faltering. The company provides debt collection services for other financial institutions, volume growth seems substantial in 2020 given collection volume of ฿28bn in 1Q20 (vs. ฿28bn/฿44bn in 2018/2019). The company charges a commission fee in the range of 10-17% on a success rate in collecting debt of 5-10%. Revenue growth from this segment has been consistent at 25% p.a.. Going forward, KGI assume JMT will get huge volume of ฿60bn/฿67bn in 2020F/2021F and assume a commission rate of 16.5%, implying revenue growth of 22%/28%, respectively.

 

Revenue from distressed assets has grown at an accelerated pace at a historical 3-year CAGR of 38%, and yield of around 30%. In 2018/2019 JMT spent ฿2.6bn/฿3.4bn to buy distressed assets with pricing at 10-12% of face value. The portfolio of distressed assets is currently around ฿8.3bn in terms of book value. Given the current faltering economy resulting from the COVID219 pandemic, NPLs from banks and non-banks are expected to pour into the market in 2020/2021, which will allow JMT to shop around to buy distressed assets at cheaper prices. 

 

KGI valued JMT based on PE and PEG, as the faltering economy will enable the company to generate extra return and solid growth. Looking back, the company was able to aggressively grow revenue and earnings in 2016 when the company acquired distressed assets that became NPL after the government’s first-car scheme. JMT has been able to grow historical 3-year CAGR revenue and earnings at around 35%. 

 

Kasikorn Securities has given “BUY” recommendation on JMT and has upgraded a target price to ฿33/share from ฿28/share, expecting a record high of net profit in 2Q20, increase 40% year-on-year (+1% QoQ) to 209 million baht as the company would collect the cash collection at 830 million baht (+18%YoY, 2% QoQ).GPM will increase to 62% from 51% in 1Q19.