KGI Securities has a “Neutral” recommendation on Bangkok Commercial Asset Management Public Company Limited (BAM) and maintained the target price at ฿33.00/share
In anticipation of overwhelming NPLs hitting the financial industry at the end of 2020 and early 2021, KGI stated that BAM is looking at approaching banks and property developers to form a partnership to manage bad debt and develop commercial property. If the partnership model goes through, the plan should be beneficial to all of the related parties: i) increase BAM’s ability to acquire distressed assets from banks by 2-3x, ii) help the bank unload NPLs by transferring into a JV company, iii) help the government and Bank of Thailand (BoT) avoid injecting huge capital to set up a national AMC, and iv) prevent a sharp fall in asset prices.
KGI reiterated that BAM remains a major potential buyer of distressed assets as BoT is considering using AMC as a vehicle to manage troubled debt worth Bt2.2trn (or around 30% of debt relief program) that may be unable to continue repayment after the relief program ends.
Currently, there are 61 AMCs; 2 state-owned (SAM, Islamic Bank,), 1 semi-SOE (BAM), 9 bank AMCs, and 49 private AMCs. Based on the regulator guidance, these scenarios may happen; i) set up a new AMC, ii) encourage existing national AMCs to be active, and iii) amend the law and relax regulations on bank AMCs (currently required to set impairment charge at 20% of distressed asset for holding period >2-year and then stepped up to 40% for >3-year, 55% for >4-year, 70% for >5-year).
KGI expected BAM to report 3Q20F earnings of Bt1.76bn, including booking deferred tax assets of around Bt1.5bn. Excluding the deferred tax asset, pre-tax profit should be around Bt261mn (+117% QoQ, -70% YoY). This would put 9M20F core earnings at around Bt1.1bn (-78% YoY). The weak 3Q20 earnings should reflect pressure on low margin from asset sales and no big lot land sales, and slight improvement in cash collection from the Legal Execution Office.
In the short-term outlook, KGI stated that BAM is vulnerable due to uncertainty on macro policy, continued weak core earnings in 3Q20, and uncertainty on the forming of a JV with a bank. Meanwhile, setting up new national AMC raises concerns about more competition in acquiring distressed assets, which would limit the company’s growth outlook in terms of inability to acquire distressed assets at a cheaper price. With overwhelming NPLs, KGI believed the asset management business is still a blue ocean. Given BAMs long-term expertise in managing bad debt, it should be the biggest beneficiary of the huge influx of NPLs.
Nevertheless, impairment charge, weaker demand for distressed assets and lower margin remained as BAM’s risks.