CHAYO: When the Going Gets Tough, CHAYO Gets Going

We initiate coverage on CHAYO with a SELL recommendation based on a target price of Bt6.90, implying a downside of 12% from the current price. We derive our target price from the 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

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.