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

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Thank you, [indiscernible]. Good afternoon, everyone. Welcome to the full year BTS Group earnings presentation. As usual, we'll go through about 20 to 30 minutes of presentation, followed by Q&A. And we'll start on Slide 6 with the quarterly highlights or the full year highlights. The same 3 themes really: Ongoing solid growth in profitability, so despite a revenue decline of 17% year-on-year, we've seen operating EBITDA up 22% to THB 7.5 billion and record recurring net profit, up 47% to THB 4.8 billion. On the balance sheet side, BTS' balance sheet has grown around about 28% CAGR for the last 4 years. But despite that, we still have a strong balance sheet with about THB 17.7 billion in terms of cash and liquid investments on an adjusted net D/E relatively low still at just over 1x. In terms of cash flow, again, same theme, we have generally been raising funds with our balance sheet expansion largely through debt. In this year, we've seen about THB 15 billion from long-term debt. But we've also had some from the equity side. And you can see the warrants, another THB 13.7 billion, and those have primarily been for investment in Mass Transit. Switching over to the overview. On the full year side, you'll see operating revenue here. You can see THB 40 billion, down from THB 48 billion. In the chart in the bottom right-hand corner, THB 9 billion of the decline from Mass Transit, the details we'll go into later. Media, actually an increase of THB 530 million as well as in the services sector of THB 630 million with Property showing a slight increase also. I mentioned already the operating EBITDA figures and the net profit. Our net income was THB 8.1 billion, up 184% to THB 2.8 billion, largely from some -- supported by some one-off gains. On the margin side, we are also seeing improvement in the margin, recurring net profit margin, so that, extracting all one-offs, at 11% versus 6% and operating EBITDA margin at 19% versus 13% year-on-year, again, largely due to the reduction in the lower-margin Mass Transit construction revenue. And a short note on the Q-on-Q numbers there. Generally, you've seen a decline. You can see 24% decline in revenue, 23% decline in operating EBITDA, again, impacts, as we'll go into later, largely sort of COVID-related plus slower progress. Having said that, the net income for the quarter was THB 3.5 billion, up 44%, again, largely through the one-off items, which leaves us with an operating breakdown: 80% for Mass Transit, 15% for Media for the quarter. On to the cash flow statement. Cash flow from operations, a drain of THB 14 billion, as usual, excluding a lot of investment items on the Mass Transit side. Cash flow from investing was also a drain on cash, as you expect, the investment this year, the Pink and the Yellow Lines, about THB 11.5 billion. There was also some land purchase this year, which we mentioned in the third quarter, already around about THB 4 billion. Offsetting that, we said we had some proceeds from land sale as well, the land base for us, what we call Bayswater land, plus dividend received around THB 2.2 billion and cash received from the return of capital of about THB 1.1 billion. Those sort of drains of cash flow from operations and investments were funded, as you can see on the right-hand side, by THB 27 billion. Source of cash, primarily from the debt and the debt capital markets, which together were about THB 16 billion, a combination of loans as well as net issuance of debentures but also some -- on the equity side, where, as I mentioned earlier, in terms of warrants from BTS, were THB 14 billion use of cash this year. Dividend payment, THB 5.5 billion, which took a THB 4 billion starting cash position at the beginning of the year to a THB 3 billion ending cash position, excluding liquid investments of about THB 14 billion. So now handing over for the segmental performance to Khun [ Jane ].

Thank you, Khun Daniel, and good afternoon, everyone. For segmental performance, we will start with the Mass Transit business on Page 9. Total Mass Transit revenue in fiscal year 2019/'20 was THB 32 billion, declining by 22% or THB 9 billion year-on-year, chiefly from lower recognition of construction revenue for the Pink and Yellow Lines with the amount of THB 17 billion, which decreased from THB 31 billion in the previous year. The decrease was partially offset by: first, higher services revenue from provision of E&M works and train procurement for the new Green Line extension of THB 2 billion to THB 8 billion. Second, higher O&M revenue of THB 1.5 billion or 65% year-on-year to THB 3.8 billion. This was mainly from full year recognition of O&M fee following the full opening of the Southern Green Line extension in December 2018 as well as the opening of the first 5 stations of the Northern Green Line extension in 2019. And third, an increase in Mass Transit-related interest income of THB 0.8 billion or 78% year-on-year to THB 1.9 billion, largely from interest income from receivables related to the Pink and Yellow Lines and the main Green Line extensions. On the cost side, Mass Transit costs also decreased, in line with the decline in revenue of THB 11 billion to THB 26 billion, mainly from lower recognition of the aforesaid construction costs for the Pink and Yellow Lines. And for operating EBITDA margin of our Mass Transit business, this year increased to 20% from 10.9% in the previous year due to the lower recognition of the construction revenue. But if we exclude the revenue costs and interest income related to the construction and the provision of E&M works and train procurement service for the new Green Line extension, our Mass Transit operating EBITDA margin would be 64.4%. For Media business on Page 10, which I will call an impressive performance in this fiscal year, achieving its full year target with an all-time high revenue and net profit. For our Media revenue in this year, it expanded by 10% year-on-year to THB 5.7 billion from THB 5.2 billion in the previous year, and Out-of-Home media still being the main contributor of 65% of total Media revenue or THB 3.7 billion, declining by 5% year-on-year due to a digital transformation impact on BTS stations and lower utilization of Office Media. Another 35% of total Media revenue was from Digital Services business of THB 2 billion, a significant increase of 54% year-on-year, mainly supported by the revenue recognition of VGI Digital Lab. And Media costs also rose by 37% year-on-year to THB 2.6 billion, largely due to higher cost of project management as well as in online advertising under Digital Services segment. Operating EBITDA margin for Media business in this year decreased to 36.2% from 45.4% in the previous year, largely from the financial recognition of VGI Digital Labs, which has a lower margin. And for our Property business. Total Property revenue in this year was THB 381 million, increasing by 6% year-on-year, chiefly from commercial property revenue. And in this fiscal year, we recognized a significant increase in share of net profit from investment in the U City of THB 1.2 billion compared to a share of net loss of THB 80 billion -- THB 80 million in the previous year, mainly from the recognition of the gain from on sale of Mo Chit Land by U City during the third quarter. And financial position as of 31st of March 2020. Total assets stood at THB 173 billion, increasing by THB 29 billion or 20% from 31st of March 2019, while total liabilities increased by 15% to THB 106 billion. And total equity increased by 29% to THB 67 billion. And in this fiscal year, we remain our low leverage position with adjusted net debt-to-equity of 1.05x from adjusted net debt of THB 70.9 billion. Now moving on to the business update, starting with the Mass Transit business on Page 14. Today, on 5th of June, we just begin the trial services of another 4 stations for -- of the Northern Green Line extension to Wat Phra Sri Mahathat station. And these additional 4 stations cover another 4.2 kilometers from Kasetsart University. And this will enhance our operational distance from 53.9 kilometers, 48 stations to 58.1 kilometer and 52 stations. And we target to open the remaining stations of this extension in December 2020. For the progress of our transportation projects. Pink and Yellow Lines are under construction with around 60% complete equally, and we expect to begin a partial operation of both lines in October 2021. And for motorway projects, we expect the contract signing within July 2020. And lastly, the U-Tapao International Airport. On 2nd of June, the cabinet has already approved the selection result that BBS Joint Venture, which has group holding 35% stake in the consortium, is the best bidder. And the next step is the contract signing, which is expected by June 2020. And this is for our Mass Transit business. Now I will hand over to Khun Nantarach for Media update. Thank you.

Thank you, Khun Sataporn. For Media segment, during 2019 and '20, it has been a lucrative year for VGI. Our revenue have reached our full year target with record-breaking net profit. This success was achieved by the consistent implementation of our strategy to provide an overall solutions, spanning across advertising, payment and logistics platform. Starting with advertising platform. The company launched a new business unit named VGI Digital Lab, which is a comprehensive online media agency. The focus is on creating online/digital marketing campaigns based on the group's data management platform to deliver precisely targeted and higher end conversion performance for our clients. Moreover, we collaborated with the largest online marketing and data technology platform in China to establish a JV named VClick Technologies. This collaboration will help Thai local brand to penetrate in Chinese outbound traveler market by leveraging the digital strength and extensive local network of VGI and iClick. On 30th January 2020, MACO had issued 1,080 million newly issued shares to Plan B, raising a total transaction value of THB 1,553 million. Following the transaction, VGI has diluted its shareholding in MACO from 33.17% to 26.55% and also reduced the number of representatives in MACO's Board of Directors. So VGI has no longer control in MACO and resulted in the change in stages of an investment in MACO from subsidiary to an associate, which effective since 30th January 2020, therefore, the deconsolidation of MACO from our financial performance. And going forward, the company will only recognize MACO's financial performance as share of profit and loss from investment only. Lastly, in advertising business, after the acquisition in Plan B, we have already launched new media packages such as Bangkok Takeover, Bangkok Combo and Street Combo. These new media packages combine digital screen of VGI, Plan B and MACO for allowing advertisers to communicate and drive brand impact to consumer in the heart of Bangkok area. With the collaboration of the group company, will allow us to capture the market share beyond our home market. Next is payment business. VGI established a JV named SLV Retail with SAHA Group to open Lawson convenience store on mass transit platform and offer Rabbit Card and Rabbit LinePay as an option for cashless payments. Currently, we have opened 12 stores already. Moreover, we continue to experience strong user growth of Rabbit Card and Rabbit LinePay. So now Rabbit Card, it reached 13 million cards, an increase of 18% from March 2019 as well as Rabbit LinePay with more than 7.3 million users, an increase of 33% from March 2019. The logistics business. The company and Kerry also continued launching various synergy products such as smart sampling, parcel sticker and media on Kerry Truck. In addition, VGI and Kerry have continued to enhance their delivery services with the launch of Kerry parcel shops on 4 BTS stations to provide more convenience through BTS express service, which allows over 1 million BTS passengers to drop off their parcels from within the station, send to other BTS station and anywhere within 200 meters around those BTS stations within 3 hours. Moving to the next page is the update of U City ongoing development projects. Start with VERSO International School located at Thana City, Bangna. The construction for Phase 1 is now 90% construction completed. We expect the school to open in August this year. Next is the mixed-use building, so-called the Unicorn Phayathai. Construction is underway with 15% (sic) [ 14% ] completion. As well as the Customs House or Roi Chak Sam project, was on the Fine Arts Department submission process for approval. So -- and it's all about media and property business update. Next, I would like to pass to Khun Siriphen for BTSGIF update. Thank you.

Thank you. Good afternoon, everybody. Today, I will present the financial performance of BTSGIF for the fourth quarter of fiscal year 2019/2020. In the fourth quarter, total income of the funds -- okay. Total income of the fund was THB 982 million. Total expenses of the fund were THB 19.8 million. Net investment income was THB 962 million, down 1.8% year-on-year and 20% -- 23% Q-on-Q. In this quarter, the fund recorded loss on valuation of investment of THB 5.9 billion from devaluation in the fair value of investment in NRTA of THB 5.89 billion due to the reappraisal, which account for the significant impact of COVID-19. The reappraisal also adjust assumption to be more in line with current economic condition and situation, such as lower economic growth rate and inflation rate and the postponement of implement of Saphan Taksin station and the delay of opening of various train lines. The new fair value of investment in NRTA decreased to THB 52.4 billion from THB 58.3 million in the previous quarter. Changes in net asset resulting from operation were minus THB 4.9 billion. For the full year, the total income of the fund was THB 4.8 billion, up 4.3% year-on-year from our cost-efficient operation, which led to an increase in income from investment in NRTA as well as an increased interest income from higher interest rate. Total expenses of the fund were THB 89 million, down 6.9% year-on-year from lower fund management fee and expenses but partially offset by higher expenses for book closing for dividend and capital return between payment and for unitholder AGM. Net investment income was THB 4.7 billion, up 4.5% year-on-year. And the fund recorded loss on valuation of investment of THB 6.73 billion from devaluation in the fair value of investment, up THB 6.69 billion, a recognition of investment cost for Suksa Wittaya station of THB 40 million. Changes in net asset resulting from operation were minus THB 2 billion. Next slide, income from investment in NRTA for the fourth quarter. Farebox revenue was THB 1.46 billion, down 17.6% year-on-year and 19.7% Q-on-Q, due to significant impact of coronavirus disease since late January 2020, which caused ridership this quarter dropped by 17.5% year-on-year and 19.9% Q-on-Q. And average fare decreased 0.2% year-on-year from higher proportion of monthly pass ticket in this quarter but increasing 0.2% Q-on-Q. O&M costs were THB 479 million, down 38% year-on-year and 12% Q-on-Q. Year-on-year decrease was mainly due to lower CapEx by THB 300 million, lower administrative and other expense and lower ticket expense but partially offset by higher maintenance costs. Q-on-Q decrease was mainly due to bonus paid to employee in this quarter, lower CapEx by THB 53 million but partially offset by higher maintenance costs and higher property insurance premium. Income from investment in NRTA was THB 978 million, decreasing 0.9% year-on-year and 23% Q-on-Q. For the full year of fiscal year 2019/'20, farebox revenue was THB 6.81 billion, down 2.1% year-on-year due to ridership drop by 1.7% year-on-year to 236.9 million trips due to significant impact of COVID-19 since late January this year and average fare drop by 0.4% year-on-year due to free trips during Royal Coronation Ceremony of King Rama X on 5th to 6th May and December 2019. O&M costs were THB 2.0 billion, decreasing 14.6% year-on-year, primarily due to lower CapEx by THB 204 million and lower employee expense from lower allocation costs from the opening of new Green Line extension. Income from investment in NRTA was THB 4.8 billion, increasing 4.2% year-on-year. This slide is the balance sheet. As of 31st of March 2020, total assets stood at THB 53.5 billion. The main component were: Investment in NRTA of THB 52.4 billion, decreased by THB 5.8 billion from the previous quarter; investment in security at fair value and cash at bank, THB 997 million; and other assets, THB 54 million. Total liabilities stood at THB 53 million. Net asset value was THB 53.4 billion or THB 9.2273 per unit. At the end of this quarter, the fund had retained deficit of THB 4.9 billion from substantial loss on valuation of investment of THB 5.9 billion. For the core network performance. In the fourth quarter, ridership was 50.4 million trips, down 17.5% year-on-year and 19.9% Q-on-Q, as the government has issued notifications forcing temporary closure of various business. Additionally, the government request for the people's cooperation to stay at home and work from home in order to control the spread of infection, causing a decrease in ridership in this quarter. Average fare in the fourth quarter was THB 28.9 per trip, a decrease of 0.2% year-on-year. Average weekday ridership in the fourth quarter was 630,000 trips, down 16.8% year-on-year and 18.6% Q-on-Q. For the full year performance, ridership was 236.9 million trips, down 1.7% year-on-year. Although during the first 9 months, ridership continued to grow from the opening of new 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. Average fare for the full year, excluding impact of free trips this year and allowance last year, was THB 29 per trip, decreased 0.2% year-on-year. If excluding all impact, average fare equaled THB 28.8 per trip, decreased 0.4% year-on-year. Next slide is the distribution. As the fund has substantial loss on valuation of investment resulting in a retained deficit of THB 4.9 billion as of March 2020, that's the -- there will be no dividend payment in this quarter. However, the fund has cash from operation in the fourth quarter. Thus, the fund will distribute as cash to the unitholder in the form of capital return. The fund announced the capital return for the fourth quarter of THB 0.13 per unit. Book closing date is on 15 of June, and payment is on 29 of June. For the full year fiscal year 2019/'20, the fund has distributed money to the unitholder of THB 0.775 per unit, dividing into dividend payment of THB 0.284 per unit and capital return of THB 0.491 per unit. Now let's look at the loss on valuation of investment and its impact. As per the SEC regulation, the reappraisal of the fund investments must be done every 3 years or when there are any significant change. However, during the fourth quarter, COVID outbreak impacted significantly to the net farebox revenue. That's the fund needed to do the reappraisal of the investment. In the fourth quarter, there was a loss on valuation of investment. This caused a retained deficit to the fund as of March 2020. Thus, the fund is unable to pay the dividend for the fourth quarter, but we will pay in the form of capital return. Change of key factor in valuation report. This slide summarize the key factor that were changes in the valuation report among March 16, March 19 and March 20 report. Key factor were impact from COVID-19, lower economic growth rate, lower inflation rate, fare integration of onetime boarding fee MRTA line, delay in implementation of dual track of Saphan Taksin station, moving van terminal at Victory Monument, delay of the opening of Green Line extension and delay of the opening of Suksa Wittaya station. Next slide show the detailed comparison and its effect between current report and the previous report. The valuation in the fourth quarter decreased by THB 5.9 million from the previous quarter, mainly from key factor as follow: First, impact from COVID-19 on fiscal year 2020/'21 [ to an amount ] of THB 3.1 billion or 50% of the total decrease. Second, certain concession period, which decreased the value of investment by THB 300 million, decreased more than the previous quarter by THB 100 million. The lower economic growth rate. We can see that previous report assumed GDP growth at 4% during 2019 to 2021. However, in current report, actual GDP was 2.4% in 2019 and assumed GDP grow at minus 2% for 2020 and 4.5% for 2021. Thus, GDP in the current report were lower than the previous report by 1.6% in 2019, 6% in 2020 but higher 0.5% in 2021. Accumulated GDP growth from 2019 to 2021 was 7% lower than the previous report. This also affect the ridership forecast in the following year. New forecast ridership cumulative growth rate was the 3.5%, which was lower than the previous report by 0.4% per annum. Fourth, lower inflation rate. Average inflation rate was reduced from 2.5% in the previous report to 2.25%, reducing by 0.25% per annum. New fare CAGR was 2.5%, which was lower than the previous report by 0.6% per annum. New fare CAGR was also partly affect by the delay of the opening of the Green Line extension from [indiscernible]. Fifth, delay in the implementation of dual track of Saphan Taksin station by 1 year, which ridership is estimate to drop in 2022 around 2% or 6 million trips. Sixth, delay of the opening of Green Line extension, Bang Wa to Taling Chan for 2 years. Next slide. In summary, valuation as of March '20 was THB 52.4 billion, decreasing from THB 58.3 million as of December 2019 by THB 5.9 billion from: First, a decrease in revenue, which caused the valuation to decrease THB 4.8 million or 80%, which result from the impact of COVID-19 on fiscal year 2020/'21 farebox revenue of THB 3.1 billion or 50%; and from impact of changes in forecasted GDP and inflation in FY 2021/'22 on [indiscernible] THB 1.7 billion or 30%. Second, an increase in expense cost. The valuation decreased THB 0.8 billion or 15%. Actually, total expense decreased THB 0.3 billion. However, lower discount rates caused higher present value of expense increase. The shortened concession period impact, the valuation decreased THB 0.3 billion or 5%. For the distribution outlook. Active fund has a retained deficit as of March of THB 4.9 billion. Thus, the fund will distribute to the unitholder in the form of capital return instead of dividend payment until the retained earnings is positive, which is estimated around third quarter fiscal year 2021/'22 or earlier if there are any positive factors to the FSO value. So next slide is the update on Suksa Wittaya station. For the construction of Suksa Wittaya station, the progress of the construction work as of March 2020 was 36.4%, delayed from the plan by 4.6%. And in April, the construction progress was 40%. The delay was from utility relocation work due to the coordination with wireless party. However, we still expect S4 station to be able to submit, allow early 2021. For Saphan Taksin station, the improvement of taxi bit is pending for cabinet approval on EIA, and the improvement of station is pending for BMA consideration on the station we desire. That's all for BTSGIF. Thank you.

So at this point, I think we're moving over to Q&A. [Operator Instructions]

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I think I will add a few more points on this part. I think, first of all, you have to understand the structure of what is our investment in the future. So okay, on the [ train's ] accountability is we will spend a certain amount of capital expenditure on -- to renew the new concessions, I mean, the Green Line concession. So this is a brownfield concession with a proven ridership and also the cash flow. But on the theory of [ trains ] is once we trigger the point -- I mean, over the 5x, then they will have some action on this part. But you have to understand that this will be a short term. So when we get closer to the 2030, which is the new construction starting, basically, the credit of the company will get much more better. So on this negative side, it's basically a short-term effect. It's not permanent. But for the company's point of view, it's now how to maintain the A to make sure that all investor invest in our bond, do not have the issues of mark-to-market. So this part that we understand. So we will try to find ways to go to deal with it. But one more point is we do not have -- expecting any facility, it means our ability to raise new facility investment. So that's not the assumption at all. So basically, all our banks and also other people are keen to help us on financing the Green Line extension project, anyway. In short is the company do not think now is the problem of the cost of funding. So now it basically is not only our main way in how to make all our investor happy. So this is the only point.

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Okay. No, I think that part is mainly on the investment opportunity, okay? We have the general mandate for every year as well. We seldom use it because we do not fund projects that we need to use that uses a huge amount of cash. So sometimes -- I think that is one of the thinking, but sometimes if they -- if the general mandate we come up with a good price of BTS in the exchange of shares, I think this is something we consider. So what that part is when we put it as a bullet. So we don't know when to shoot. And at the moment, we do not have any plan of it. But once that is a good opportunity, then it may also make sense to use shares to go to swap into other new investment, I think we will use it. So this is a trick of -- the moment I can tell you, we do not have anything in the pan at the moment.

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So just a question from JB at UBS. I'll read it out and -- but -- and generally -- and maybe Surapong can take this. But first part of the question is regarding the Green Line concession extension. Any update in terms of when that is expected to be passed? And the second part, which I'll answer, is about the compensation for GIF. Greenlight concession?

As we already answered, kind of this is now in the process to get the cabinet approval, which I expect that should be very soon. We've got now BMA also in [indiscernible].

Okay. And JB, with the compensation for BTSGIF, it's nothing that we can talk about publicly at this stage. So the process, as you probably know, after then is once it gets approved by BTS Group shareholder, it also has to be approved by the BTSGIF unitholders. So that's a secondary process which we can't give you much color in terms of the quantum or the amount of that at the moment. I'm sorry.

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