CHAYO: High Growth Expectations Make It Hard to Outperform

We change our recommendation on CHAYO to SELL from HOLD but raise our target price to Bt8.70 (previously Bt7.30), implying a downside of 22% from the current price. We derive our target price from a 30% premium to the 2021E PB of Thai Diversified Financials and apply a 15% small-cap discount, giving a 2021E 4x target PB.

Investment thesis:

• Rising level of bad loans in Thailand can boost core business
• Economic uncertainty helps to expand the customer base for debt collection
• Joining the hemp hype supposed to bring additional income
• Debt collection to further benefit from increasing mobile usage
• High growth is priced in, warrant exercise to fund growth

Interim: The 4Q20 results were strong, and we revise our loan-growth and loan yield slightly upward. However, we still think that CHAYO lags its huge potential.

Risks: Increased competition in acquiring non-performing loans, loss from unsecured debt management, adverse regulatory changes, and potential litigation issues arising from debt collection service.