The company offers debt collection service for a fee of 8-10 per cent pa and buys distress debt for capital gains. Recent interest in the share price appears from the assumption that adaption of IFRS9 accounting standard by banks in Jan 20, and rising debt in the financial system will lead to increased supply of distress debt at a cheap price.
At the end of last quarter, JMT had a distress debt of 8.0 billion baht, which may rise to 10 billion baht by the end of the year, as few analysts forecast. Distress debt purchased during extreme economic lows — such as what Thailand is going through currently — can result in the hefty gains in the long term.
While the supply of distress debt would certainly rise, we remain skeptical of the returns from bad loans. Given the worsening economic state, bad debts could remain bad or could possibly get worse.
JMT is trading on PER of 30x 2020 vs. BAM’s 19x. While we advise investors to steer clear of financial sector stocks, our pick between the two is BAM, which has a much larger portfolio and experienced management than JMT.