Analysts see growth in NPL management

Analysts see growth in NPL management

Debt collection and management of non-performing assets pose lucrative growth opportunities amid the economic retraction, financial analysts say.

According to Maybank Kim Eng securities analyst Thanaphat Suksrichavalit, the debt management business will outperform in the second half of 2020.

The top pick in the industry is JMT Network Services. The company has been able to collect debt in cash continuously since April and has an accounting profit record of 6.7 billion baht, up 19% in the year to date.

JMT has increased its subordinated loans in portfolio by 2 billion baht, compared with the full-year target of 4.5-5 billion baht. With non-performing loans (NPLs) in the economic system rising, the company has capital prepared to acquire those bad assets.

Maybank Kim Eng expects JMT's net profit to increase by 28% this year, outperforming other stocks in the non-bank sector that are expected to post 5-15% profit growth. The company recorded a second-quarter net profit of 227 million baht, up 10% from the previous quarter and 51% from the same period of last year.

Amid the economic recession, the debt collection business should grow as distressed assets proliferate. Stocks poised to gain include JMT, Bangkok Commercial Asset Management (BAM) and Chaya Group.

An analyst at Yuanta Securities said debt management will be a high-growth business amid the economic downturn.

BAM plans to acquire NPLs and non-performing assets (NPAs) of about 10 billion baht, an amount equal to what it acquired last year. In the first half of this year BAM acquired 7.66 billion baht, with 6.56 billion baht in NPLs and 1.1 billion baht in NPAs.

"We expect the net profit of BAM to recover from the third quarter, supported by increased selling of NPLs and NPAs due to the Legal Execution Department resuming auctions already," the analyst said. "The company is also increasing advertising through a promotional campaign for the purchase of second-hand assets in the third quarter. We expect that the company will have a profit of around 2.55 billion, or a decrease of 61.1% this year, and then will continue to profit from selling assets."

BAM will have extra income from a corporate tax refund of 2020-22 (though there is uncertainty about how much will be received each year).

An analyst at SCB Securities views BAM as a strong defensive stock. And while the company's net profit was weak in the second quarter, it will be a temporary situation, the analyst said.

The company will likely start a recovery in the third quarter and will book special income from corporate tax refunds of 2 billion baht in 2020, 1.5 billion baht in 2021 and 1 billion baht in 2022, according to the analyst.

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