KGI Securities maintains an ‘Underperform’ recommendation for Jaymart Group Holdings Public Company Limited (SET: JMART) following concerns over the debt market.
Debt market constraints and concerns over debenture defaults have intensified pressure on debenture issuers like JMART, whose substantial funding relies heavily on debentures. With approximately 80% of JMART’s funding sourced from debentures, the current scenario poses increased challenges for the company.
JMART, currently in the process of issuing THB 1.2 billion in debentures, faces heightened difficulty in the bond market, leading to the need for offering more incentives and issuing secured debentures using JMT Network Services (SET: JMT) shares as collateral, with an increased coupon rate of 5.2% for a term of 1.75 years to refinance existing debentures with a cost of funds of 4.6% due in September 2024.
Additionally, JMART has disclosed having a bank credit line of about THB 3.4 billion as an alternative funding source.
The constraints in the debt market not only affect JMART’s short-term financing but also pose risks to its long-term growth plans, given its role as a holding company obligated to provide financial support to group entities. The need to issue further debentures for financing long-term growth may be impeded by the current challenging conditions. It is worth noting that JMART has upcoming commitments to redeem/refinance THB 2.5 billion in debentures in September 2024 and THB 1.5 billion in April 2025.
KGI anticipates that JMART’s operating earnings will face pressure in the second quarter of 2024, primarily attributed to subdued performance expectations for JMT (a major contributor of JMART’s earnings), slower growth projections for J-Mobile, and steady growth forecasts for Singer Thailand (SET: SINGER). The analyst projects JMART’s 2Q24F earnings to amount to THB 143 million, a decline from a net profit of THB 236 million in 1Q24 and a net loss of THB 611 million in 2Q23.
KGI has revised down JMART’s 2024F and 2025F earnings by 4% and 8%, respectively. This adjustment factors in the higher funding costs at 5.2% (up from 4.9%) and increased administrative expenses related to JMT. Applying a PE ratio of 15x, KGI has set a new target price for 2024 (TP-24F) at THB 11.50, lower than the previous target of THB 12.00.
