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

[Audio Gap] and fund managers, and welcome to the BTS Group and BTSGIF Second Quarter of 2022 Analyst Meeting. Before we commence the meeting, [Operator Instructions[ and we'll be open to a Q&A session after the presentation has concluded. Today, we are joined by the management team starting from Mr. Surayut, CFO of BTS Group; Mr. Daniel, CIO of BTS Group; Ms. Chawadee, Financial Controller of BTS Group; Ms. [indiscernible], Group Treasurer; Ms. [indiscernible] Fund Manager of BTSGIF; and Ms. Soraya, Acting CEO and CFO of U City. And lastly, we are joined together with the IR team from BTS Group, VGI and U City, and Mr. Kong Chi Keung, Deputy CEO of BTS Group. So now I'd like to hand over to Mr. Daniel to recap on the second quarter's overview and financial performance.

Welcome, everyone. Nice to see you again. Today, we'll start with the presentation as usual, BTS Group, going on to the business highlights page. . within the MOVE division, really, only some rail updates this quarter, they're non-rail, but, yes, Pink Line progress at 91%, and the Pink Line extension starting in earnest now at 7% progress, both are expected partial full operation within 2023. The Yellow Line is at 97% and expect full operation by the second quarter of 2023. We, as usual, have some outstanding -- updates on the outstanding debt situation in the court, which we'll go through later. Moving on the advertising side, you can see the revenue recovery start to begin at 35 -- 34% increase in mix revenue this quarter. But on the payment side, we continue to get additional Rabbit Card users, up 8% year-on-year; Rabbit LINE Pay, up 13% year-on-year. And on the distribution side, we launched 7 Turtle coffee shops under NINE's operations within this quarter. On the MATCH side, our newest showcase, which is the latest deal, but subject to AGM next week is a joint investment in TNL, which is a flagship entity to form stronger ties between ourselves and the SAHA Group. U City continued its transformation with continued divestment of real estate assets and is also expecting a rebranding, again, of the name to Rabbit Holdings, subject to AGM next week. Next, on to the financial statement highlights on the P&L basis, again, summarized as about revenue being re-based towards the nonconstruction phase, with operating revenue down as a consequence, 18% year-on-year. MIX revenue, however, as we mentioned, certainly up 34% year-on-year. EBITDA margin strengthening, 37%, and net profit at THB 474 million, down 18% year-on-year. On the balance sheet, it still remains strong. Cash and liquid investments, a very healthy THB 18.9 billion. Very comfortable on the leverage as well, with low leverage adjusted net D/E of 1.5x. The 6-month cash flow, similar to the first 3 month cash flow shows a slight trend towards more capital markets activities. So sustainability linked bonds were issued at THB 11 billion. VGI rights offering proceeds of THB 6.2 million, and repaying debt around THB 7 billion, with sort of a smaller investment in the MOVE, Pink and Yellow lines a roundabout THB 2 billion. Skipping now on to the overview of the income statement. Total revenue, THB 5.9 billion, down 14% year-on-year. Once again, the waterfall in the bottom right-hand corner are mirroring a similar position to the first 3 months, whereby most of the reduction in revenue is attributable to the MOVE business. But actually, we've seen a strength and an increasing revenue from MIX and MATCH. Recurring EBITDA, THB 1.68 billion, down 15% from softer MIX and MATCH businesses. Net income, THB 474 million, reflecting that EBITDA performance, plus a slight increase in finance costs. Margins generally are increasing year-on-year. Again, a higher -- sort of the lower concentration of the MOVE construction revenue, and that's reflected in the pie chart in the bottom left-hand corner where you see MOVE is now 69%, MIX 28%, which is up from 12% last quarter, and MATCH 3%. On the cash flow, this is a 6-month cash position -- or cash flow position. Starting cash THB 4 billion, ending cash of THB 7.6 billion.

[Foreign Language] Excuse me, the microphone is off.

Okay. I'm not sure where to start from, but I'll just continue from the strengthening of the cash flow, up to THB 7.6 billion. The cash flow from operations was a drain of cash of THB 4.69 million -- THB 4.69 billion. And again, if we adjust for debt outstanding or receivables related to the O&M debt as well as investment, and interest expense has actually a positive CFO or adjusted CFO of a roundabout THB 2 billion. Cash flows from investing was a drain of cash of a roundabout THB 4 billion. Again, that's a much lower average than we used to have, right? So we're averaging about THB 2 billion a quarter now compared to THB 4 billion, THB 5 billion over the last few years as the investment in the Pink and Yellow line slows down. Nevertheless, in this 6 months, we have THB 1.6 billion in the Pink and Yellow lines in construction and also acquisition of financial assets around THB 3.9 billion. Cash flow from financing was a source of financing, a source of cash, rather, THB 5.7 billion, THB 9.7 million net cash from the issuing of the sustainability linked bonds. Cash received from the RO of VGI, THB 6.2 million and offset by net cash paid for the financial institutions and bills exchange of around THB 7.1 billion. The others item remains the same as for the first 3 months, and that's just cash, which, at the beginning of the year, was off -- essentially, off balance sheet held in the clearing house. So that's THB 6.7 billion for the VGI rights offering, and that's a THB 6.7 million cash coming into the company, finally leaving us with a THB 7.6 billion cash balance. And now over to the MOVE business concern.

[indiscernible]. So now let me walk you through the segmental performance, starting with MOVE business. As you -- as Daniel mentioned earlier that the development of new rail lines is reaching the tail end stage, resulting in the reduction in construction revenue. So in this quarter, we booked MOVE revenue of about THB 3 billion. However, this figure is offset by a higher and a rise in O&M revenue of THB 1.7 billion. And if I can draw your attention to the last third column on the left-hand corner, you can see that in the second quarter of last year, MOVE -- sorry, O&M revenue contributed about 35%. And now in this quarter, O&M revenue contributed about 55%, meaning going forward, O&M revenue will continue to be a key driver of the business. Moreover, we booked share of profit from BTSGIF of about THB 1 million, that's, of course, to the share of loss of THB 48 million in same quarter last year. This is due to the strong rebound in the BTS ridership, which Mr. Vongphaibul will explain in more details later on in this presentation. Moving on to MIX business. The company booked a revenue of THB 1.3 billion, an increase of 34%. This is driven from -- driven by 3 main key business: Out-of-Home advertising; digital services; and distribution. For the Out-of-Home advertising and digital services, we believe that the trend will persist in the following quarter, especially for the Out-of-Home advertisings since it has a strong ties to BTS ridership. And we expect that it will reach about 90% of our pre-COVID level, and this is supported by the high seasonality trend as well. Moving on to MATCH business. We booked a revenue of THB 142 million, an increase of 54%, and this is driven by the operation of Thana City Golf & Sports Club. We also booked a lower share of loss from U City of THB 130 million, and this is compared to a share of loss of THB 161 million in the same quarter last year, thanks to the record of higher insurance revenue, higher hotel revenue and also the gain from disposal of hotels in Europe, making the accumulated share of profit of THB 178 million in the first half of the year. Moving on to financial position. Our assets expand by THB 2 billion driven by cash. And our -- adjust -- however, our adjusted net debt also increased as well by about THB 9 billion, from THB 126 billion to THB 135 billion. And as a result, our adjusted net debt to equity was 1.54x, still well below our debt limit. Now I would like to pass it on to my colleague, Khun [ Thavikulwat ] to walk you through the business update.

Thank you, Khun Surapong. Moving on to BTS Group's update, let's start off with the sustainability development at present. Following the tremendous success of our very first sustainability linked bonds issued this year in May, and the overwhelming response is registering at 1.67x oversubscription, BTS Group is proud to announce the launch of 2 more sustainability linked bonds to be issued in the last week of November. This will be the company's first ever in Thailand SLB bond offering made available to the public. The SLB incorporates sustainability, then KPIs and performance targets. The first one, the first KPI is energy efficiency, to reduce 8% total electricity consumption per car kilometer for the Green line compared to business as usual within 8 years from now. The second KPI is renewable energy, to have at least 10% per year renewable energy consumption of the Green line operations. The expected proceeds are approximately THB 20 billion, which will be used for debt repayment. The bonds were rated A by TRIS rating and comprises of 4 tranches ranging from 2 to 10 years, with a coupon rate between 2.95% to 4.7% per annum. As a carbon-neutral company, BTS Group places great importance on the development of low-carbon infrastructures to support the sustainable growth of the community we serve. Over to your right-hand side, you can see the group has raised total of THB 42.8 billion, thus far, through sustainable finance initiatives. THB 31.8 billion were raised through green bond issuances, followed by THB 11 billion through the first SLB launch this year. Moving on to the MOVE update. As of September 2022, the overall progress of the Pink Line operations is currently at 91% near completion. We can expect full operations by the end of 2023. However, due to issues related to land handover with the Department of Highway, there are chances of partial operations occurring sometime in 2023. Additionally, in August 2022, Bangkok Land Public Company Limited, or BLAND, held a signing ceremony with MDM for the construction of the skywalk connection in the Pink Line extension. The current progress is at 70% -- 7% on the Pink Line extension. Moving on to the Yellow Line operations. This is currently at 97% near completion, and we can expect full operations during the second quarter of 2023. However, once fully operational, the company will receive 4 subsidiaries from the MRTA. Moving on to the non-rail business, we'd like to once again reiterate on the Intercity Motorway progress. Following the time line, the construction of the toll collection system and traffic management has commenced at the beginning of this year and has progressed according to our plan. We still remain our expectations for the full commercial operations to begin 2025, few years from now. Now I'd like to hand over to Ms. Nantarach to tell you about the MIX update.

Thank you, Mr. Thavikulwat. So as the Thai economy has continued to recover throughout the second half of 2022 due to the COVID-19 pandemic as well as an improvement in the [indiscernible] sector and economic activities, which led to an increase in the number of BTS ridership. In response to the aforementioned recovery trends, which we experienced events, which is a workshop to help agencies and brands plan and execute more efficient advertising campaigns to reach the target audiences through VGI's marketing solutions. . Moreover, VGI also showed the effectiveness of VGI's offline to online marketing solutions through the advertising campaigns showcases, which was able to create [indiscernible] engagement and conversion for brands. VGI also took this chance to introduce new media packages such as O2O office media focus package, aiming to reach the hybrid office workers that has a flexible workplace between in office and remote work by utilizing VGI big data to target audience through offline media across 1,500 digital screens in 195 office building and also use the online media platform to target the audience. For the MIX business, Rabbit Card and Rabbit Line Pay users has been continuously growing from an expansion of the service points with VGI strategy [indiscernible]. Currently, the number of Rabbit Card reached 15.6 million cards with an increase of 8% year-on-year. And Rabbit Line Pay users increased to 10 million users with an increase of 13% year-on-year. And during the last quarter, Rabbit Cash also extended its welfare loan service for employees across BTS Group affiliated companies. Next is the distribution business. After the acquisition of the 60% in Nation International Edutainment Public Company Limited, or known as NINE, NINE continuously standardized or modernized merchandising spacing area -- merchandising area along the BTS network. And now NINE started to operate Turtle Shop, a lifestyle retail store on 3 BTS station, including St. Louis, Phloen Chit and Victory Monument station. Moreover, during the last quarter, NINE also launched Turtle coffee to provide easy grabs to-go food and beverage, meals for consumers. Currently, Turtle Coffee are available on 7 BT stations, including Chit Lom, Asok, Thong Lo, Phrom Phong, Sala Daeng, Chong Nonsi and On Nut. And it's all for MIX business update. Next is the MATCH business update, I will pass back to Mr. Thavikulwat. Thank you.

Thank you. For the MATCH update this year, a new MATCH showcase was made between BTS Group and SAHA Group. This showcase will be; the first substantial flagship business in forming stronger ties between BTS Group and SPI, which is SAHA Group's financial arm. BTS Group will invest a 41% stake ownership in Thanulux, or TNL, and you may be wondering what is TNL or Thanulux. Thanulux operates in the manufacturing and distribution of the apparel or garment industry and wants to diversify its portfolio into the secure lending and asset management business. During this partnership, BTS Group will expand its MATCH business portfolio to focus into the property backed lending businesses through Oxygen asset. Now again, you may be wondering what is Oxygen Asset. Founded in 2021, Oxygen Asset provides financing to customers, notably within the real estate industry. Its current portfolio stands at THB 2.5 billion and is focused on securing large loans from clienteles. TNL, or Thanulux, will begin its expansion by investing within the secure lending businesses through investments in Oxygen with approximately THB 4.3 billion. With this transaction, the group will also be assisting U City's transition into the financial services business, as U City will be disposing its 7 joint venture development projects with Noble Development. As part of moving on to U City's transformation, as part of its move into the financial services, Rabbit Life, U City's insurance business, launched a new product known as Hero10/3. The launch of this insurance product was driven by the ever-changing trends within the insurance industry. The unique selling point covers faster returns, tax return benefits and shorter investment time frame of 3 years. This is aimed at new generations that are interested towards investing. The HERO 10/3 is an investment integrated product where the insured pays an insurance premium for 3 years and receives a life insurance coverage of up to 10 years. And they also receive a 20% refund of the sum insured in the first year. The second box is the disposition of hotel businesses on August 30, 2022, U City entered into a sales and purchase agreement with [ HR Group ] to partially dispose its European wholesale portfolio as part of its divestment into the financial service business. Meanwhile, on September 30 2022, U City also announced its intention to dispose its joint venture with Noble, as previously mentioned in the previous slide. U City will dispose of its JV with Noble and its subsidiaries a total of 7 companies to Thanulux at the total purchase by some THB 2.5 billion. However, this is subjected to the shareholders' approval of the AGM, which is held on November 24, this month. Lastly, another key indication of City -- U City's divestment from its real estate business, following its -- following the company's divestiture of its real estate business, U City recently announced its new identity under Rabbit Holdings Public Company Limited. Again, this is also subjected to the shareholder's approval at AGM this month on the 24th of November.