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

Good afternoon, all analysts and fund managers. Welcome to BTS Group and BTSGIF’s Second Quarter 2021/’22 analyst meeting. In this quarter, a lot of events and successful cases are waiting to be told. [Operator Instructions] And today, as usual, we are honored to welcome our management team starting with Khun Surapong Laoha-Unya, CEO of BTSC or BTS SkyTrain; Khun Chi Keung Kong, our Deputy CEO of BTS Group; Khun Surayut Thavikulwat, CFO of BTS Group; and next, Khun Daniel Ross, CIO of BTS Group; Khun Chawadee, Financial Controller of BTS Group; and moreover, our management from BTSGIF, Khun Siriphen, fund manager; and lastly, IR team from BTS Group, VGI, MACO and U City. Thank you, [indiscernible]. And now I would like to hand over to Khun Daniel for the good news and the earnings presentation.

Thanks, [ Clive ]. Welcome, everybody, to the second quarter presentation. Before we get into the operational performance, I'm pleased to report that BTS Group was once again included in the DJSI Index and also for the second year, ranked #1 globally in the transportation segment. Additionally, we are also included in the THSI or the Thai Sustainability Index. So very grateful for the recognition of BTS Group's sustainability ethos. Going on to the highlights for the second quarter in terms of the P&L. There are -- despite the sort of year-on-year reductions, I would still say there's a demonstrated profitability resilience. Revenue was down 31% year-on-year to THB 6.9 billion, but on an EBITDA level, it was largely flat at THB 2 billion, and our EBITDA margin increased to 35.6%. Net profit was around THB 576 million, about 25% reduction year-on-year. On the balance sheet, it's quite similar Q-on-Q. Cash and liquid investments about THB 19 billion and adjusted net D/E just inching up a little bit from 1.39x last quarter to 1.44x this quarter. Cash flow, the same theme. Net cash received from investments, long-term debenture, THB 12 billion as well as some increase in loans from long term -- from financial institutions, THB 5.5 billion, largely reinvested in the development of our Mass Transit business in this particular 6 months; rather, it was a THB 7 billion investment in the Pink, Yellow and Green Line. Moving on to the P&L snapshot. We see total revenue down 31% to THB 6.8 billion, and [ Jane ] will go into the reasons why. You can see that entirely from the MOVE division in the bottom right-hand corner. At a gross operating profit level, however, the reduction was much less, only 11% reduction to THB 1.3 billion, and that's clearly because most of the revenue is essentially a shift from the lower-margin construction revenue to higher-margin O&M business. On a recurring EBITDA level, only a 2% decline to THB 1.98 billion. When we get down to the net profit level, you can see that the reduction is more marked, and that's primarily from the increased interest of finance cost during the quarter that after the additional leverage. Margins, you can see below there improving across the board, recurring EBITDA margin at 35.6%, up from 22.6%. The operating revenue breakdown in the bottom left-hand corner, MOVE is 81% of revenue and MIX at 17% of revenue. On to the 6-month cash flow snapshot. Cash flow from operations according to financial statements of THB 7.5 billion drain on cash. You'll see the note in the bottom left-hand corner of the slide, which shows that actually, we are cash flow positive of an amount of THB 880 million if you make the adjustments such as extracting the investment in the Pink and Yellow and the E&M works out. In terms of investing cash flows, that was a drain of THB 5.8 billion during the quarter. Whilst there was an investment in U City for the rights offering, that was net offset by the repayment of the long-term loan of THB 5 billion. So that's actually a net return from the U City of around THB 2 billion. So most of the investment, again, coming from the investment in the Pink and Yellow Lines of THB 4 billion in the 6 months. And in terms of financing cash flows, as I mentioned earlier, long-term debentures, issuance of around THB 13 billion on the 6th of July as well as additional drawdown of the loans from financial institutions for the Pink and the Yellow Lines, offset somewhat with the dividend payment of THB 2.1 billion as well as repayment of some short-term lines, which left the group with an ending cash of THB 5.97 billion, up from THB 3.8 billion at the beginning of the fiscal year. On to the segmental business performance, I'll hand over to Jane.

Thank you, Khun Daniel. For second quarter performance, we'll begin with the MOVE business. This quarter, the company reported operating revenue of THB 5,493 million sic [ 4,493 million ], decreasing by 44% year-on-year. This is mainly from lower construction revenue for the Pink and Yellow Lines of THB 2.7 billion year-on-year to THB 2.9 billion. This is due to the temporary closure of the construction worker camps in July. Another reason for the revenue reduction was from lower services' revenue for E&M works and train procurement service for the Green Line extensions of THB 789 million year-on-year to THB 44 million as we enter the tail end of development. However, in this quarter, we -- the O&M revenue grew by 20% year-on-year or increasing by THB 257 million to THB 1,557 million. This is mainly due to the full operation of the Northern Green Line extension in December last year. On the cost side, cost of MOVE decreased by 51% from THB 6,739 million to THB 3,276 million in this quarter. This is chiefly due to lower recognition of costs related to the development of new lines. And Mass Transit interest income this quarter was up by 25% year-on-year to THB 823 million, while share of -- from investment in BTSGIF reported a loss of THB 48 million compared to a share of profit of THB 108 million in the previous year. This is as a result of the Delta variant pandemic since June 2021. For the margin MOVE, recurring EBITDA margin improved almost double from 25% in the previous year to 43.7%. This is largely driven by higher O&M recognition as well as higher Mass Transit related interest income business. Now moving on to the MIX business. In this quarter, having a growth in operational revenue of 30% year-on-year to THB 959 million, mainly from growth in Rabbit Group as well as the 2-month consolidation of Fanslink by VGI since August. Within MIX subsegment, out-of-home media was affected by the pandemic. This has resulted in a year-on-year decline in revenue across all media segments of 39% or THB 185 million to THB 294 million, which is, all segments benefit from the consolidation of Fanslink having a significant growth in digital revenue of 157% year-on-year to THB 665 million, driving the contribution, doubled to 69% from 35% in the previous year. For the cost of MIX, this also rose as an effect from the consolidation of Fanslink, which rose by 85% year-on-year to THB 767 million. Moving on to the MATCH business. Operating revenue was THB 92 million, declining by 59% year-on-year, chiefly from lower revenue from HHT Construction. And in this quarter, the company recorded a narrower share of loss from U City of THB 161 million compared to a share of loss of THB 268 million in the previous year. This is supported by the gains from partial disposal of European hotels portfolio as well as the gains from exchange rate. For a financial position as of 30th September 2021, total assets were THB 229 billion, increasing by 8% from 31st March 2021. The increase was mainly from receivables related to the Mass Transit projects of THB 13 billion, an investment in associates of THB 5 billion from the subscription of U City's rights offering in May and increase in investment in properties of THB 2.4 billion from land acquisition around Yellow Line extensions as well as an increase in cash and cash equivalent of THB 2 billion, partly offsetting the decrease in net long-term loans to related parties of THB 5 billion from U City’s debt repayment. Our total liabilities increased by 12% to THB 152 billion, shifting from an increase in net long-term debenture of THB 12 billion from the issuance of the THB 13 billion debenture by BTS Group on 6th July as well as an increase in loans from financial institutions of THB 5.6 billion from the drawdown of Pink and Yellow Lines syndicated loan. This is partially offset by its short-term loans from -- the lower short-term loans from financial institutions of THB [ 0.5 billion ]. Total equity rose minimally by 1% to THB 76 billion, mainly from higher noncontrolling interest of THB 1.3 billion following the payments of additional share capital in Northern Bank of Monorail Company Limited and Eastern Bank of Monorail Limited for the Pink and Yellow Lines project. On the leverage position, the adjusted net debt to equity stood at 1.44x from adjusted net debt of THB 111 billion in this quarter. Now let's move on to the business update. I'll hand over to Khun Pornprasert. Thank you.

Okay. Thank you Khun Sataporn. And let's start with BTS Group update. On the 6th of July 2021, BTS Group successfully introduced senior unsecured bonds of THB 13 billion through institutional and high net worth investors with 2.1x oversubscription. The bonds were rated A by TRIS Rating Company Limited, and we will issue in 3 tranches with an average coupon of 3.21%. The proceeds from the bonds were used for debt repayment. And the second one, on the right-hand side, on 8th of November 2021, BTSC, which is a subsidiary of BTS Group and also operator of BTS SkyTrain has issued senior unsecured green bonds of THB 10.2 billion through institutional and high net worth investors. The green bonds were rated A by TRIS as well, and we will issue in 4 tranches with an average coupon of 3.06%. The proceeds of this bond will be used for Southern and Northern Green Line extensions, which are the eligible green projects, which will help bring the better quality to the greater Bangkok. And moving on to the MOVE business. On the 1st of July, BTS SkyTrain has launched its new promotion, Ride, Earn Points and Get Free Trips in order to relieve customers of upfront payment to become pay as you go. From this promotion, passengers are able to collect Rabbit points from commuting on the train, and then passengers can choose to use the collected points to redeem the BTS – [ the bit fit ] on the BTS train or enjoy special discounts and deals from many leading brands via the loyalty program. This promotion will be effective for 1 year, starting from 1 November 2021 to 31 October 2022. For the Pink and Yellow Line, the construction of both lines in this quarter has been delayed due to the temporary shutdown of worker camps in July 2021. The Pink Line was 82% completed, and the Yellow Line was 86%. However, we remain on our expectation on the full operation of the Pink Line within 2023 and Yellow Line in next year or 2022. For our motorway project, this is another huge step of BTS Group to expand its business to nonrail business. On 29th September 2021, our joint venture BTSR, which BTS Group holds 40% shares has successfully entered into the 30-year PPP agreement with Department of Highway with – for the 2 intercity motorway M6 and M81. From now on, we expect to receive the NTP to start construction in December this year and aim for the commercial operation in the next 3 years in 2024. So these are BTS Group and MOVE update. I would like to hand over to Khun Nantarach for MIX and MATCH update. Thank you, and over to you.

Thank you, Khun Pornprasert. For MIX business, I would like to give you a quick update on the investment in Jaymart transaction. The VGI has made a strategic expansion to the retail business by announcing its intention to invest 15% in Jaymart Public Company Limited. The company will purchase around 206 million newly issued ordinary shares at around THB 30 per share or equivalent to THB 6.3 billion. So let's see the potential synergies with Jaymart. This investment will enable VGI to strengthen its O2O marketing solutions and capture strong growth in retail business. Furthermore, this strategic partnership will allow VGI to explore potential synergies with Jaymart, which includes providing VGI's advertising and marketing services to the Jaymart group, enabling partners to utilize merchandising space on BTS’ station, which Jaymart is able to utilize the spaces as its pick-up and service points. Also expanding Fanslink distribution network across Jaymart and Singer shops nationwide and utilizing Kerry’s warehouse and logistics services for Jaymart Group. As you can see, this investment was also one of successful MATCH showcases, which matching company under the group with potential partners to explore new growth in different industry. So next, move to the Rabbit Cash. So Rabbit Cash launched 100% digital lending service platform under the concept Money Rabbolution. Rabbit Cash will utilize alternative data through the cutting-edge technology, which enables consumers to experience a seamless digital lending since the application process to loan disbursement via a smartphone. Recently, Rabbit Cash introduced pilot loan products with Kerry and Humanica and plans to officially launch its lending services in the fourth quarter of 2021/’22 after obtaining the lending business license from the Bank of Thailand. The product offer in the first phase will include nano loans, welfare loans, payday loans and buy now pay later lending service. And next is the MATCH business update. So following -- after BTS Group made a strategic investment in YGG since December 2020, BTS Group continues to work on creating potential synergies among its group companies. Now BTS Group successfully matched MACO and YGG to establish a joint venture in order to expand the business into the gaming industry. During the past few years, the gaming industry in Thailand has been receiving growing interest from big and small investors. Supporting by the government for the creation of the Thailand E-Sports Federation with the aim to turn gamers into professional e-sports players. Moreover, the search of the digital economy in Thailand and ASEAN over the past 2 to 3 years has boosted the growth of the gaming industry by 15%, which is currently valued at around USD 900 million. MACO will help fulfill the gaming ecosystem by strengthening YGG platform to better promote new games in Thailand and Southeast Asia through its advertising platforms. Moreover, they aim to drive synergies on the digital front with gamer group, one of the group's partners, who is mainly in financial technology and crypto digital token to unlock value creation in the future, while YGG will leverage the expertise in creative and game business for more than 15 years to help on building gaming ecosystem and drive Thai gaming industry into global markets. So next, let me pass to Khun [ Ton ] for U City business update.

U City business update. U City is transforming from the real estate and hospitality sector to become the financial and investment arm of BTS Group. It is expected that the U City and BTS Group could both benefit incrementally from synergies across distribution, cross-selling and customer reach under BTS 3M, MOVE, MIX and MATCH strategy. Starting from the top left-hand side, initially, the investment in Jaymart and Singer, U City invested 9.9% in Jaymart and 24.9% in Singer in order to capture the opportunity in the financial market and generate greater return on investment. Moreover, we will expand further into other financial service sector in the near future. Secondly, the 75% investment in A Life, the company will focus on life insurance business for retail clients by offering micro insurance. We expect it to leverage from BTS Group partner ecosystem in order for A Life to gain market share and play a major role in the insurance industry. Lastly, if you look at the pie chart on the bottom left corner. As of today, U City will transform 35% of our real estate portfolio into financial services. U City will eventually dispose the entire real estate portfolio within 3 years and fully transition to become the financial and investment arm of BTS Group Corp. So next, it'll be -- move on to BTSGIF part.

Thank you, [ Ton ]. Good afternoon, everybody. Today, I will present the financial performance of BTSGIF for the second quarter of fiscal year 2021/’22. In the second quarter, total income of the fund was THB 10 million, down 99% year-on-year and 94% Q-on-Q. The income from investment in net farebox revenue was THB 10 million, declining by 99% year-on-year and 94% Q-on-Q, mainly from the impact of the Delta variant of COVID-19 outbreak. Total expenses of the fund were THB 16 million, down 16% year-on-year and 14% Q-on-Q. Year-on-year decrease was from lower fund management fee and expenses, while Q-on-Q decrease was mainly from the recording of annual advisory fee in the previous quarter. Net investment income was minus THB 6 million, down 100% year-on-year and 104% Q-on-Q. In this quarter, the fund recorded gain on investment of THB 350 million. This resulted from the projected net revenue in the second half of this year, was expected to gradually recover from the anticipation for a relief situation of COVID-19. The present value of the remaining thus increased more than the absence of cash flow from the shortened period of the concession agreement. Changes in net assets resulting from operations were THB 343 million. Next slide is the income from investment in NRTA. In the second quarter, farebox revenue was THB 334 million, decreased 71% year-on-year and 32% Q-on-Q. Year-on-year and Q-on-Q decrease came from the decline in ridership by 72% year-on-year and 34% Q-on-Q to 10.6 million trips from the impact of Delta variant of COVID-19 pandemic, but was partially offset by the increase in average fare by 6.2% year-on-year and 3.6% Q-on-Q to THB 31.4 per trip. O&M costs were THB 324 million, decreasing 20% year-on-year and 0.3% Q-on-Q. Year-on-year decrease came from the reduction in employee expense from no bonus payment this year whereas there was bonus payment of THB 32 million last year and lower cost allocation from full opening of Green Line extension. Second, lower utility expense from lower ridership and operating hours resulting in less electricity consumption and the lower selling expenses from lower ridership, resulting in less commission expense from Rabbit Card usage. No Rabbit Reward expense and lower PR and advertising expense. Q-on-Q decrease came from lower utility expense from lower ridership and operating hours, resulting in less electricity consumption but was partially offset by higher administrative and other expenses from environmental testing fee and employee insurance premium being recorded for 2 quarters. Income from investment in NRTA was THB 10 million, decreasing 99% year-on-year and 94% Q-on-Q. Next slide is the first half [ info ]. May I skip this one and go to the balance sheet. Quarter balances as of 30 of September 2021, total asset was THB 45.5 billion. The main components were investment in NRTA of THB 45 billion, increased THB 350 million from 30th of June. Total liability was THB 61 million, and net asset value was THB 45.4 billion or THB 7.85 per unit. As of 30th of September, the fund had deficit of THB 10.4 billion. Next slide is the core network performance. In the second quarter, ridership was 10.6 million trips, down 72% year-on-year and 34% Q-on-Q, resulting from the Delta variant of COVID-19 situation since late June this year and the curfew announcement during mid of July to October 2021 in order to control the spread of infection. The curfew announcement effected reduced SkyTrain operating hours with -- declined by 3 hours from 6 to 24 hours to 6 to 21 hours and generally came back to normal operating hours on 1st of November. Average ridership was 136,000 trips, down 73% year-on-year and 36% Q-on-Q. Average fare effect in the second quarter was THB 31.4 per trip, increasing 6.2% year-on-year and 3.6% Q-on-Q, mainly from lower proportion of monthly pass tickets, which generate cheaper average fare compared to other types of ticket and higher recognition of expired ticket revenue. Next slide is the distribution. As of 30th of September 2021, the fund had deficit. Thus the fund is unable to pay the dividend in this quarter. However, the fund has cash from the operation for the period April to September of approximately THB 0.024 per unit. Thus, the fund will not pay the distribution in the form of capital return in this quarter, but will accumulate with the next payment. On the next slide, the business update on the Saint Louis station. The progress of Saint Louis station was 100% in September. The overpass renovation was finished in September, and additional work for the water spraying system under the station was finished on November 1 in this because some construction work are excluded from the plan. For example, skywalk and elevator work on the North Sathorn side is still waiting for the suitable location from BMA. Next slide is the update on new fare promotion. On the 1st of September 2021, BTSC announced to terminate monthly card promotion on BTS SkyTrain system for 23.5 kilometers collide including Saphan Taksin and Wongwian Yai stations on the Silom Line Extension on 30 September 2021. Thereafter, on October 18, BTSC announced to launch new promotion to offer special privileges through the Rabbit Rewards loyalty program for passenger to earn bonus points from their journeys to redeem free tips, including special discounts and deals from leading brands for 1-year period, effectively from 1st November 2021 to 31st October 2022. Moreover, BTS Group Holding will offer additional 1 time point to be double points for 3 months during first 1st November 2021 to 31st January 2022. Bonus point will be received and used to redeem free trips as shown in the table. By example, passenger traveling 3 trips per week will get 600 normal points and can use 600 points to redeem 3 free trips per adult. Next slide is the benefit and costs. Next slide, please. Okay. For the benefit and cost to the fund. For the benefit, BTSGIF will get incremental revenue from pass termination, which BTS guarantees minimum incremental revenue after point cost at 10% of incremental revenue and point expired value, if any, which is being under negotiation with Rabbit Rewards. For the cost, the fund will pay point cost, which is approximately 90% of incremental revenue and onetime fixed cost of approximately THB 46 million for the data platform and IT enhancement and additional annual operation cost of THB 12 million. That's all for the BTSGIF. Thank you.