CHAYO: Still Lags on Enormous Growth Opportunities

We upgrade our recommendation to HOLD from SELL on CHAYO with a revised target price of Bt7.30 (previously Bt6.90), implying a downside of 3% from the current price. We derive our target price from a 30% premium to the 2021E PB/ROE of Thai Diversified Financials and apply a 15% small-cap discount.

Investment thesis:

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

Interim: The 3Q20 results were below our expectations, and we still think that CHAYO lags on enormous growth opportunities. We revise down our loan-growth assumptions.

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. A risk to our recommendation is that sentiment drives the share price considerably higher.