BTS Group Holdings Public Company Limited (BTS) Earnings Call Transcript & Summary

[Foreign Language] Good afternoon, everyone. I'd like to wish you all a corona-free welcome to our analyst conference today. Nice to see some of you wearing face masks, some of you not wearing face masks. So we don't discriminate. You can all stay. So today, we'll just move on to the presentation, and we'll start with a slide which gives, if you like, some of the recognition of the group's sustainability results within the year. Whilst awards -- whilst we appreciate the recognition, actually the substance is more important to us. We do adopt a sustainable approach as part of our core values. And we -- as you may know, if you've read the sustainability report, we focus on 6 of the UN Sustainable Development Goals, including sustainable cities as well as climate action. But more importantly, in the long term, we think that this sustainable approach actually enhances shareholder value. And we think we are differentiated from most of other companies in this set as a result of it. So moving now into the shorter-term highlights, which, here, we have the third quarter highlights. Look, the key messages are the same as they have been pretty much for the last 2 or 3 years where we're seeing solid growth in profitability. With this particular quarter, we're seeing record recurring net profit of THB 2.4 billion, up 140% year-on-year. The balance sheet remains strong. And bear in mind that we've had a balance sheet that has expanded. It's doubled essentially in the last 3 years. We're seeing gross debt go from THB 36 billion to THB 80 billion. And in spite of that, we still have a very strong balance sheet with cash and liquid investments at about THB 20 billion and adjusted net D/E at 0.84x. On the cash flow, once again, we -- the funds raised, whether it's on the debt side or on the equity side, are earmarked for investments in the Transportation or Mass Transit segment and primarily for long-term contracts. On to some of the P&L overview. Operating revenue, THB 11 billion, down 42% year-on-year. As you all know, this is mainly to the rate of construction of the Pink and Yellow lines. So we will see some volatility quarter-to-quarter, and you can expect this to continue. At an EBITDA level, however, that's smoothed out. You can see operating EBITDA was up 21% to THB 2.25 billion. And 2 key factors are the O&M growth as the Green Line network expands as well as VGI's continued record profit and EBITDA. At a net profit level, you see very strong growth numbers, both on recurring net profit and accounting net income up 143% and 107%, respectively, to around about THB 2.4 billion. Beyond the EBITDA growth, this quarter, we've seen sort of increased share of income from associates as well as stronger interest income. And the pattern of that earnings growth is similarly impressive on the Q-on-Q basis as well as the 9-month basis. A comment on margins. Obviously, you see an increase in margins for this particular quarter, and that's primarily driven by the proportion of business coming from higher-margin business, the reduction of the construction revenue, which is a lower-margin business. Which brings us to our revenue proportion, which is 78% from Mass Transit; 17%, Media; and 5% for Property and Services for the quarter. So I'll just move on to the cash flow snapshot. Cash flow from operations is a use of cash of THB 11.4 billion. And as usual, included in there is about -- this quarter, about -- sorry, this 9 months, about an THB 8 billion investment both from the Pink and Yellow as well as the Green Line extensions. On the investing cash flows, a THB 10 billion use of cash, the majority of it coming from a THB 9 billion investment in the Pink and Yellow lines. Aside from that, there were some land acquisition and sales. As you remember from the first quarter, we received about THB 2.3 billion from the sale of land in Bayswater. And also in the second quarter, there was some land -- around THB 4 billion invested in a land bank. On the financing side, THB 20 billion or so, THB 21 billion finance from a degree of equity and some debt -- equity and some debt. The warrants provided us with THB 13.7 billion in terms of cash for the 9 months. We saw a net increase in debt or long-term loans from financial institutions of THB 12.5 billion relating to the Pink and the Yellow lines; a net increase in long-term debentures, THB 7.5 billion, which as you may recall is primarily from the green bonds, which were issued in May last year, about THB 13 billion, offset with about a THB 5 billion redemption of bonds, which are issued back in 2016. But there's more notes. You can see the notes for that in the financial statements, Note 20. And aside from that, sale of VGI, VGI warrants, a source of cash, THB 3.7 billion, and offset with THB 12.3 billion net paid, a reduction in short-term debt and a dividend payment of THB 3 billion, which left us with an ending cash of THB 3.8 billion, which including the cash and liquid investments would take us to a THB 19.8 billion cash and liquid investment balance, which is stronger than the 3 months prior to that. Now for the Mass Transit and the segmental performance, I'll hand over to [ Jane ]. Thank you.

Thank you, Khun Daniel, and good afternoon, everyone. As usual, we'll begin the segmental performance with the Mass Transit business. Total Mass Transit revenue in the third quarter of fiscal year 2019/'20 was THB 8.7 billion, a decline of 49% or THB 8.5 billion from last year, mainly from the reduced recognition of construction revenue for the Pink and Yellow lines of THB 9 billion to THB 4.5 billion in this quarter. But the decrease was partially offset by higher O&M revenue as well as higher Mass Transit-related interest income. During this quarter, O&M revenue rose by 67% or THB 376 million to THB 942 million, chiefly from the full year recognition of O&M fee following the full opening of the Southern Green Line extensions in December 2018 as well as the opening of the first 5 stations of the Northern Green Line extension last year. While Mass Transit-related interest income increased significantly by 123% or THB 357 million to THB 646 million largely as a result of interest income from receivables related to the Pink and Yellow lines as well as the provision of services for the new Green Line extensions. On the cost side, costs also decreased by THB 9 billion to THB 6.8 billion mainly from lower recognition of construction costs for the Pink and Yellow lines. And the operating EBITDA margin for Mass Transit increased to 21.1% from 8% in the previous year due to the lower recognition of the construction revenue. If we -- if the revenue costs and the interest income related to the Pink and Yellow Lines construction as well as the provision of E&M works and train procurement service for the new Green Line extensions were excluded, the operating EBITDA margin for the Mass Transit business will be 62.3%. Now moving on to the Media performance. VGI continued to deliver another record-breaking revenue and net profit in the third quarter of this fiscal year, with revenue expanded by 25% year-on-year to THB 1.8 billion from the strong organic growth in Transit Media as well as the consolidation of international advertising in the Outdoor Media segment. Within Media business, Out-of-Home Media contribute 66% of total Media revenue or THB 1.2 billion, increasing by 24% or THB 229 million year-on-year. The strong growth was mainly driven by positive impact from the consolidation of international advertising in Outdoor Media segment as well as the growth in Transit Media, after the decline resulting from the impact from the renovation work on digital Out-of-Home advertising during the past year. Digital Services business contribute another 34% of total Media revenue or THB 632 million, an increase of 27% year-on-year, mainly supported by the revenue recognition of VGI Digital Lab. Media costs also increased by 36% year-on-year to THB 808 million, chiefly from the aforesaid consolidation as well as operating EBITDA margin, which declined by -- which declined to 37.4% from 43% last year, chiefly from the aforesaid consolidation as well. Next is the Property business. Total Property operating revenue in this quarter was THB 114 million, an increase of 28% or THB 25 million year-on-year, mainly from commercial property revenue. And in this quarter, we recognized a significant increase in share of net profit from investment in U City of THB 1.3 billion compared to a share of net profit of THB 82 million in the previous year, largely from the recognition of gain of THB 1.1 billion from the sale of Mo Chit Land by U City. And now moving on to the financial position. As of 31st of December 2019, total assets stood at THB 172 billion, an increase of THB 28 billion or 19% from 31st of March. Total liabilities stood at THB 100 billion, an increase of 9% or THB 8 billion from 31st of March. And total equity increased by THB 20 billion or 38% to THB 72 billion. For more details of the financial position, can be found in the MD&A. Now let's move on to the business update, starting with the Mass Transit on Page 13. Our Green Line network coverage expanded almost double during the past 2 years driven by the full opening of 9 stations of the Southern extension in December 2018 as well as the first 5 stations of the Northern extension last year. And we target to open 4 more stations of the Northern extension to Wat Phra Sri Mahathat station in June this year and expect to commence the full operation by the end of this year. So all in all, our Green Line network will expand to a total of 59 stations covering 66.7 kilometer by this year from 48 station or 53.9 kilometer currently. For the Pink and Yellow lines, the constructions were underway despite some delay in land handover by MRTA, and we continue to put our best effort to meet the original target in October 2021. For motorway project, as BTS, our consortium is the best bidder. We are awaiting contract signing, which are expected by April 2020. And after the announcement made by the Royal Thai Navy that BBS JV was the best bidder for U-Tapao International Airport on 30 of January, we currently negotiate on the contract and expect the contract signing by June 2020. Lastly, we start to see some progress of the Orange Line, which is one of our targeted lines after the cabinet approved in January. And we expect the bidding in October 2020. And now I will hand over to Khun Nantarach for Media update. Thank you.

Thank you, Khun Sataporn. Start with advertising business. On 14 January 2020, during the extraordinary general meeting of MACO, shareholders approved: first, the acquisition of Hello Bangkok LED Company Limited; second, the issuance of newly issued shares through private placement to Plan B; and third, an agreement with Plan B on advertising, media management and service agreement, which MACO will receive minimum guarantee from Plan B of THB 700 million per year. These transactions were completed on 30 January 2020, after completed the sale of MACO's new shares to Plan B, resulting in a dilution of the group's shareholding in MACO from 33.17% to 26.55%. In addition, VGI has also reduced its member in MACO Board of Directors from 5 out of 9 persons to 2 out of 7 persons. So VGI would no longer have control in MACO. As a result, MACO changed its status from VGI's subsidiary to an associated. Therefore, VGI will deconsolidate MACO, which effective on 30 January 2020. For the full year financial results announcement in May 2020, VGI will report a retrospective restated of profit and loss statement since 2018/'19 and 2019 and '20 in order to show apples-to-apples comparison. So VGI has changed our full year revenue target from THB 6 billion to THB 6.2 billion to THB 3.8 billion to THB 4 billion, representing 15% to 20% growth based on the restatement. However, net profit remain unchanged. Hence, net profit margin is expected to increase from 20% to 25% to 30% to 35%. Next, MACO also expanded its footprint to Vietnam market, which is the highest growth potential country with 6.9% GDP expansion and more than 100 million population in last year. On 21st January 2020, MACO Board of Directors have approved to invest 25% in VGI Vietnam's joint stock company with a total investment of THB 460 million through VGI MACO Singapore. VGI Vietnam is the leading outdoor media operator in Vietnam with a nationwide static and digital billboards networks. This investment will allow MACO to leverage its know-how to increase potentiality and strengthen VGI Vietnam operation. For this transaction, it's expected to be complete within March 2020. Moving to payment sector. Still continue to experience strong user growth. Currently, the number of Rabbit Card reached 12.6 million cards and Rabbit LINE Pays of more than 7 million users. So now I would like to pass to Khun Nachanok for property section update. Thank you.

Thank you, Khun Nantarach. Let's move on to property updates. VERSO International School is an international school that offers a personalized education experience, which designed with students' interests and passion based on American educational system. It is a 50-50 joint venture between U City and Hong Kong partner located in Thana City area. The construction as of December 2019 is at 85% completed. The school will be ready to open for the first semester in August 2020 from prekindergarten to grade 8. We have teachers and staff ready for the opening and now accepting for students' application. For Roi Chak Sam project, it is aimed to restore this colonial era heritage building into a luxurious 5-star hotel with world-class dining experience that locates along Chao Praya River in Charoen Krung area. The status as of December 2019 is on the Fine Arts Department submission process for approval. It is expected to be completed and begin operation in 2025. For the Unicorn Phayathai, it is a mixed-use building comprised of retail, office, hotel and residence located adjacent to the 2 mass transit stations, which are BTS Phayathai station and Airport Rail Link Phayathai. The project value is approximately THB 9.3 billion. The construction as of December 2019 is at 12.38% completed, which is expected to be fully completed by the first quarter of 2022. This is the business update for U City. Let me hand over to Khun Siriphen for BTSGIF updates.

Thank you, Khun Nachanok. Good afternoon, everybody. Today, I will present the financial performance for BTSGIF for the third quarter of fiscal year 2019/'20. In the third quarter, total income of the fund was THB 1.28 billion, up 4.6% year-on-year but down 5.8% Q-on-Q mainly from the income from investment in net farebox revenue, which increased at the same rate to THB 1.27 billion. Total expenses of the one were -- of the fund were THB 18 million, down 16.8% year-on-year from lower fund management fee and erosion of incentive fee for BTSC. Total expenses decreased by 33% Q-on-Q from both quarter spend and AGM meeting in the previous quarter, a reversion of incentive fee to be registered in this quarter. Net investment income was THB 1.26 billion, up 5% year-on-year but down 5.2% Q-on-Q. In this quarter, the fund record loss on valuation of investment of THB 208 million, which is non-cash expense from the valuation in the fair value of investment in NRTA of THB 200 million from THB 58.5 billion in the previous quarter to THB 58.3 billion, further decreasing in the remaining period of NRTA. A recognition of investment cost for Suksa Wittaya station are -- is for THB 8 million. Changes in net asset resulting from operation were THB 1.05 billion. Adding back excess liquidity from loss on investment of THB 200 million, total distribution available to unitholder will be THB 1.25 billion or THB 0.215 per unit, up 4.3% year-on-year but down 4.8% Q-on-Q. For 9 months, total income of the fund was THB 3.84 billion, up 5.7% year-on-year from the increased income from investment in NRTA. Total expenses of the fund were THB 69 million, down 17% year-on-year primarily from lower incentive fee to BTSC and fund management fee. Net investment income was THB 3.77 billion, up 6.3% year-on-year. The fund record loss on valuation of investment of THB 822 million from devaluation in the fair value of investment in NRTA of THB 800 million, a recognition of investment cost for Suksa Wittaya station of THB 22 million. Changes in net asset resulting from operation were THB 2.95 billion. Next slide for the income from investment in NRTA. In the third quarter, farebox revenue was THB 1.82 billion, increasing 1.3% year-on-year but decreasing 1.3% Q-on-Q. Year-on-year increase was from ridership growth by 2.2% year-on-year to 63 million trip from the opening of Green Line extension, Southern Line from Samrong station to Kheha station in December 2018 and Northern Line from Mo Chit station to Ha Yaek Lat Phrao station in August 2019 and to Kasetsart University station in December 2019, but partially offset by free ride on 12 December 2019 for the royal coronation ceremony of King Rama X. Q-on-Q decrease was from the decrease in ridership from several holiday in this quarter. For the O&M costs. O&M costs were THB 546 million, decreasing 5.5% year-on-year but increasing 10.9% Q-on-Q. Year-on-year decrease was mainly due to lower employee expense from lower allocation cost with extension line from the opening of new Green Line extension, economy of scale and lower administrative and other expense from the decrease in ticket expense and delay in payment for environmental testing, but partially offset by higher capital expenditure in this quarter, which consists of AFC upgrade of THB 31 million, rolling stock of THB 22 million and radio upgrade of THB 20 million compared to AFC upgrade last year of THB 41 million and rolling stock, THB 11 million. Q-on-Q increase was mainly from bonus paid to employee in this quarter but partially offset by lower administrative expense, mainly from the payment of employee health insurance last quarter and lower other expenses. Income from investment in NRTA was THB 1.27 billion, increasing 4.6% year-on-year but decreasing 5.8% Q-on-Q. Next slide, for the 9 months performance. Farebox revenue was THB 5.36 billion, increasing 3.1% year-on-year mainly from ridership growth by 3.6% year-on-year to 186.5 million trips, which include free trip during royal coronation ceremony of King Rama X on 5 and 6 May, and 12 December 2019, a total of 2.1 million trips; and the impact from recognition of net free trip allowance to passenger from train service disruption last year of THB 18.5 million, but partially offset by free ride for royal coronation ceremony of King Rama X this year of 3 days. For O&M cost. For the 9 months, O&M costs were THB 1.54 billion, decreasing 2.6% year-on-year primarily due to: lower employee expense from lower allocation costs with the extension line from the opening of new Green Line extension; second, lower selling expense as there were several CSR and public relation event last year; third, lower administrative and other expense from the decrease in ticket expense and receiving insurance claim, but partially offset by higher CapEx in this year, which consists of rolling stock of THB 159 million, AFC upgrade of THB 31 million, and radio upgrade of THB 20 million compared to radio upgrade of THB 71 million; AFC upgrade, THB 41 million; and rolling stock, THB 15 million last year. Income from investment in NRTA was THB 3.82 billion, increasing 5.6% year-on-year. Next slide, for the balance sheet. As of 31st of December 2019, total assets stood at THB 59.6 billion. The main component were investment in NRTA of THB 58.3 billion, decreased by THB 200 million from the previous quarter; investment in security at fair value and cash at bank, THB 1.2 billion; and other asset, THB 170 million. Total liabilities stood at THB 29 million, and net asset value was THB 59.6 million or THB 10.2967 per unit. For the core network performance on the next slide. In the third quarter, ridership was 63 million trips, including free trips for royal coronation ceremony of King Rama X on 12 December 2019 of 1 million trips, up 2.2% year-on-year but down 1.5% Q-on-Q. Year-on-year increase was mainly from the opening of Green Line extension, from the full operation of Southern Line of 9 station from Samrong station to Kheha station in December 2018; and the first 5 station of Northern Line from Mo Chit station to Ha Yaek Lat Phrao station in August 2019; and to Kasetsart University station in December 2019. However, the ridership increase was offset by 4 fewer weekdays than last year. Q-on-Q decrease was from lower weekday in this quarter, as there were several holiday in this quarter such as King Rama IX Memorial Day and Father Day, and the impact from the opening of Blue Line extension at Bang Wa station. Average fare in the third quarter excluding extra event for free trip this year and last year was 73 -- THB 29.3 per trip, increased 0.7% year-on-year and 1.7% Q-on-Q. Average weekday ridership in the third quarter was 775,000 trips, up 3.1% year-on-year but down 0.9% Q-on-Q. For 9 months, ridership was 186.5 million trips, including free trip during the royal coronation ceremony of King Rama X on 5 and 6 May and 12 December 2019, a total of 2.1 million trips, up 3.6% year-on-year due to the opening of new Green Line extension and low base effect from train service disruption last year. Average fare for 9 months excluding extra event was THB 29 per trip, increasing 0.3% year-on-year. For the distribution. Distribution for the third quarter is THB 0.215 per unit, dividing into dividend payment of THB 0.181 per unit and capital return of THB 0.034 per unit. Book closure date is on 28 February, and payment date is on 13th of March. For the business update on Suksa Wittaya station. For the construction of Suksa Wittaya station, the forecast of the construction was -- work as of December 2019 was 28.3%, delay from the plan by 2.7%. The delay was from the utility relocation work due to the coordination with various party. If deposit of utility relocation has been complete, if we make the forecast as planned, the construction will take about 18 month to complete and 2 month for installation of E&M work and estimate to be able to submit -- allow early next year. That all for BTSGIF. Thank you.