JMART raised JMT as its flagship investment for group with a potential for long-term growth in the future higher than any companies under JMART’s group. Analysts expected JMT to report a new high of net profit this year at 937 million baht, increasing 38% along with its high dividend yield, giving a target price at ฿40/share.
KGI Securities (KGI) assessed that after JMT Network Services Public Company Limited (JMT) and Jay Mart Public Company Limited (JMART) (its parent company) approved a general mandate for capital increase, the company committed that its capital increase plan is an option for potential opportunity M&A. For JMT, it proposed to increase registered capital from Bt555mn to Bt787mn, increasing new capital by Bt232mn (par Bt0.5) through right issue (RO) and private placement (PP) with free warrant JMT2W3. Concern about share dilution (totaling around 30%) resulted in the share price correcting 10% last Friday.
According to the recap plan, the company elaborated that RO will be the last option, and plans to exercise the existing warrant first (JMT2W2 expires in Aug22021), and then PP. If JMT2W2 is exercised, it will raise cash and equity base by around Bt4.2bn. At this level, JMART plans to early exercise JMT2W2 worth around Bt1.8bn (or 40% of JMT2W2 outstanding) at the end of September 2020, which will bring down JMT’s D/E to around 1.3x (from 2x currently). JMT plans to purchase distressed assets of Bt6bn/Bt10bn in 2020/2021 (already bought Bt2.0bn in 1H20), which will boost D/E to around 2.0x at year-end 2020 and will be around 2.3x in 2021. Within this asset purchase plan, JMT does not need to raise capital through RO/PP.
JMART positions JMT as a high growth company and high dividend play, with a historical dividend payout ranging at 70%. Even assuming the dividend payout is maintained, JMT’s D/E is still less than the ceiling at 3.0x. Fair price of Bt40.00 (PE 35x, PEG 1.0x) maintained KGI maintained the earnings forecast for JMT and assume JMT2W2 is converted in 2020, which will raise equity base and lower D/E to 1x and will be 1.8x if the acquisition of asset of Bt10.0bn is included in 2021.
However, there is a risk from share and earnings dilution from warrant conversion, incurred every two years in the past, margin change from change in amortization cost of investment, impairment charge.
Trinity Securities expected that JMT’s net profit for the second half of 2020 to hit a new high of 937 million baht or a 38% increase from a year earlier, while maintaining a target price at ฿35/share and upgraded a rating to “BUY” recommendation.