A surge in nonperforming loans in Thailand is proving to be a rewarding business for JMT Network Services, the nation’s biggest bad-debt collector, which is also buying the debt at a deep discount for its own book.
JMT Network, which started out in 1997 as a commission agent for lenders and retailers at the onset of Asian financial crisis, intends to purchase a record 31bn baht ($930mn) face value of distressed debt this year, chief executive officer Piya Pong-Acha said in an interview in Bangkok. If successful, it will add to some 9bn baht the firm has already bought in 2017, he said.
Delinquent loans have climbed amid lacklustre growth in Southeast Asia’s second-largest economy. Commercial lenders’ total bad loans surged to 413bn baht as of June 30, or 2.95% of the total, central bank data shows. That’s the highest ratio since 2011. Nonperforming debt will continue to climb given the structural challenges facing some troubled Thai businesses, according to a Credit Suisse Group note.
“The further rise in bad loans has boosted optimism for the company’s earnings growth outlook,” Piya, 47, said. “Banks and other lenders have indicated their plans to put a lot more distressed loans up for sale to clean up their balance sheet and reduce the operating cost of recovering them on their own.”
JMT Network holds distressed debt with a face value of about 120bn baht, which it bought from third parties at about a 95% discount, said Piya. Lenders sold the delinquent credit-card and personal loans at that price because they aren’t backed by collateral and have been in arrears for at least five years.
JMT Network stock has more than doubled over the past 12 months in Bangkok, reaching a record 30.25 baht on July 17. That ranks it among the top 20 best performers in the 572-member SET Index.
Krungsri Securities Co, Bualuang Securities and other brokerages have initiated coverage with buy or outperform calls since June. 
The consensus 12-month price target implies 12% upside to the July 27 closing price, according to data compiled by Bloomberg.
The company’s efforts at rehabilitating defaulted debt have generated, on average, a more than 12% return on investment over the past decade, Piya said. The firm’s annual target is to buy at least 30bn baht of distressed loans to achieve a base of 200bn baht by the end of 2019, he said. The purchases will be financed by operating cash flow and a 1.5bn baht budget, Piya said.
The company has the option to fund the programme with debt if needed, Suwat Bumrungchatudom, an analyst at Bualuang Securities, said by e-mail on July 27. Its debt-to-equity ratio of 1.2 times provides ample room for growth, without getting near the 4 times limit in its local-currency debt covenant, he said.
In its traditional business, JMT Network is assigned to track and collect 25bn baht of bad loans on behalf of lenders and retailers, said Piya, who co-founded the company with five others. Payment on collection is typically 10% to 15% for every dollar collected for clients, which include HSBC Holdings Plc, Bangkok Bank and Kasikornbank.
In the next three years, JMT Network plans to build out its business in other Southeast Asian countries including Cambodia, Malaysia and Vietnam, Piya said.
“The growth driver will be in neighbouring countries where external debt collection services are still rare and untapped,” said Piya. “Our existing clients have expanded their lending businesses in those countries and they are requesting our help for bad debt collection.”