Company Update - BTS

We keep our tactical recommendation NEUTRAL with a new SOTP-based TP of Bt12.5 (from Bt13.3) to reflect our earnings downgrade. Our TP would be Bt8.0 without the Green Line concession extension. We see no real catalyst for share price in the next three months.

Recap 2QFY23 (Jul–Sep 2022) results. BTS reported net profit of Bt474mn, down 11.5% QoQ and 17.7% YoY. Stripping out non-recurring items, core profit was Bt360mn down 22.4% QoQ and 37% YoY. Operating revenue was Bt4.6bn, up 14.4% QoQ, but down 18.1% YoY. The QoQ growth was from improvement in mass transit (under MOVE) and media (MIX) businesses upon rising BTS ridership. Equity income fell to minus Bt116mn from Bt213mn last quarter, largely a reflection of weaker earnings at U City from rising operating expenses and SG&A as well as one-off expense related to the hotel divestment deal. Overall, 1HFY23 core profit accounted for 25.5% of our previous full-year forecast.

Key takeaways from analyst meeting. The tone was neutral. Management said it has eight pending court cases: five for the Orange Line and three for the Green Line and none has a specific timeline. It says the debt outstanding related to the Green Line extension is now ~Bt44bn, evenly split between O&M and E&M. Construction of the Pink Line is 91% complete and should open partially early in 2023 and fully by end-2023. Yellow Line construction is 97% complete and full operations are expected in 2Q23. The total project cost for Pink and Yellow is ~Bt86bn vs Bt96bn initially forecast. We had also assumed Bt96bn. We will revisit this after both are running.

3QFY23F to grow QoQ, but should fall YoY. We expect 3QFY23F earnings to grow QoQ due to higher construction income from the Pink and Yellow lines. In 1HFY23, BTS booked Bt2.4bn in construction income and it expects the full-year number to be Bt6bn. Additionally, equity income should improve QoQ. In 3Q22 (2QFY23 for BTS), U City booked ~Bt150mn one-off expense. The YoY drop will reflect lower construction income.

Revised down FY2023F numbers. We cut our FY2023F earnings by 22% to Bt2.5bn (-12.9% YoY), after we cut our gross margin assumption to 30.2% from 35.1% vs actual 1H margin of 33.3%. We expect gross margin to weaken in 2H from higher contribution of construction income which has low margin.

Risks and concerns. The overhang on the Green Line concession extension and debt repayment from the BMA will continue to cap share price upside, as the timeline remains unclear.