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

A very, very good afternoon, analysts and fund managers. Pleasure to welcome you to the first quarter of 2024 of BTS Group and BTSGIF analyst meeting. Thank you all for taking the time with us today, and we appreciate you're continuing interest in our group. Allow me to take a moment to introduce our management as follows. Khun Daniel, CIO and Head of IR of BTS Group; Khun Chawadee, CFO of BTS Group; Khun Sayam, Chief Legal of BTS Group; Khun Soraya, acting CEO and CFO of Rabbit Holdings; Khun Kamolmas, Treasurer of BTS Group; Khun [ Nattaporn ], Financial Controller; Khun Sinatta, Director of IR and SD; Khun Siriphen, Fund Manager of BTSGIF. Last, but not least, familiar faces from IR team. And as you have been noted, in this quarter, we have new additions to our team, so allow me to take a moment to introduce. Number one, Khun [ Savin ], Secretary of VGI. New addition to BTS Group IR, Khun [ Sakthichon ] and Khun Techinee; and Khun Yada, [ technical chief now ] in ROCTEC. So for today's agenda, we'll take about 0.5 hour presenting our financial results on the first quarter and the business update. We have prepared some time for Q&A toward the end. So we encourage all your questions and open discussion. So before we commence the meeting, please ensure that your microphone is off, and we appreciate your cooperation. So without further ado, I'd like to pass on to Daniel to walk you through the company performance.

Thanks, Khun, and welcome, everybody, again. First, to business highlights, as you can see, a lot of the highlights revolve around MOVE. Starting with the Pink and Yellow Lines, just notice that the financial statements for this quarter are characterized by no more construction revenue from the Pink Main Line and the Yellow Line. It's also characterized, as you all know, by losses from operations, which you'll see in this quarter, approximately THB 400 million to THB 500 million. But also that we have cash inflows from subsidy payments of approximately THB 4.8 billion a year. So once again, just to reiterate that we do get positive cash flow from operations despite the P&L losses on the Pink and Yellow Lines. Secondly, with regards to MOVE, the E&M debt repayment. So that's been resolved in our favor. As you know, on the 2nd of April, BTSC received THB 23 billion principal and interest payments in full. And you will see that reflected in reduced debt and higher cash in this quarter's balance sheet. Finally, 26th of July, in relation to the other core dispute, in the O&M, the Supreme Court ruled in BTSC's favor. The BMA, Krungthep Thanakom have to pay within 180 days. And also, very importantly, the Supreme Court opined that the O&M contract is valid and signing of it followed due process. Not too many highlights on the MIX side. But as you'll know, if you joined from the VGI on this conference, they have now turned around to a net profit position and a large part of that turnaround is as a result of no further loss contribution from the investment in KEX. Similar story on MATCH, actually, an operational improvement there. But a key contributor is, again, no further impairment losses from investments in SINGER. On the 1st of August, the BTS Group Board of Directors announced a group restructuring comprising of, let's say, a few different components. Up first, you have, at the BTS Group level, a capital increase, 1 new share for every 4.5 existing shares at THB 4.5 per share. And there are also acquisitions announced for BTS Group to acquire the shares of both ROCTEC and RABBIT via voluntary tender offer. Separately, at a VGI level, they have to conduct a private placement to 4 investors at THB 1.5 per share. And these transactions are subject essentially to our EGMs, which are scheduled on the 30th of September and the 15th of October, respectively, for BTS Group and VGI. If these are approved, we expect the resulting group will have a strengthened capital base, improved leverage ratios and the ability for both the associates and subsidiaries to pursue their further growth opportunities in a better manner than before. Now moving on to the financial highlights. On the P&L side, a bit of a mixed bag. Operating revenue down 27% (sic) [ 28% ] to THB 3.6 billion, again, mainly from the discontinuation of construction revenue on the MOVE side. Recurring EBITDA actually increased 12% year-on-year to THB 1.9 billion. We'll go into the details later. And a net loss of THB 382 million, an improvement versus the THB 770 million loss in the first quarter of the last year. On the balance sheet, further strengthening. Cash and liquid investments increased to THB 25 billion. Adjusted net D/E reduced to 2.29x from 2.5x 3 months earlier. And if you exclude the government receivables on the O&M, the adjusted net D/E is further lower at 1.7x. On the cash flow, the operational cash flow actually goes from strength to strength. Now a recap that last year, we saw a strong cash flow performance with adjusted CFO of almost THB 10 billion for the year. In the first quarter, we've seen a net cash flow from operating activities of THB 22.4 billion, again, largely from the E&M debt repayment, and that you can see is being used to reduce loans from financial institutions and B/E of around THB 7.4 billion and also repayment of some of our debentures. Now moving over to the quick overview of the income statement. As I mentioned before, total revenue, THB 5.25 billion, down 22%. Operating revenue THB 3.6 billion, down 28%. You can see in the graph, on the bottom right-hand corner, that most of the reduction in operating revenue is from the MOVE business. Recurring EBITDA of THB 1.9 billion, up 12.2%, largely driven by improvement of MIX and MATCH. Recurring EBITDA, mainly from the share of profit component where we saw no KEX contribution or JMART contribution, and we also saw an increase in contribution from ROCTEC. Net income of THB 382 million loss, again, a 50% improvement compared to the previous year. All said and done, recurring EBITDA margin this quarter is 52%. Net profit is a negative net profit margin of 7.3%. And in terms of, finally, the operating revenue breakdown, 61% from MOVE, 31% from MIX and 8% from MATCH. Cash flow -- actually, a very simple cash flow chart for the quarter. We see an increase in cash of THB 10 billion from THB 6 billion, THB 16 billion. You can see most of that is generated from the blue column, which is the cash flow from operations, okay? Very little, most negligible of the pink column, which is investing activities, reflecting a slowdown in investment. And finally, a reduction in [ loan ], basically, use of funds for cash flow from financing, as I mentioned, the THB 7 billion of financial institutions and bills of exchange payments as well as the debentures, and interest expense of THB 2.13 billion. So that's it for the cash flow. Now I hand over to Khun [ Sakthichon ] for the MOVE business update.

Thank you, Khun Daniel. Let's move on to the segmental performances, starting with MOVE business. In the first quarter of '24/'25 full year, our MOVE operating revenue was THB 2.2 billion reduced by 39% year-on-year. This was mainly due to a lower construction revenue of THB 1,762 million, mainly from the Pink and Yellow Line after the completion of the Pink main line and Yellow Line construction. However, the decrease was partially compensated with positive factor with, first, the record of ticket revenue from the Pink and Yellow Lines of THB 225 million; second, a gradual growth in revenue from the Green Line network and the Gold Line. Separately, we also booked a share of profit from investment in BTSGIF of THB 106 million, an increase in farebox revenue of the Core Line Network driven by a steady growth in ridership of 7% year-on-year, reaching 47.8 million trips. Next, on to the MIX business. MIX operating revenue decreased 5% year-on-year to THB 1.2 billion, resulting from the softer revenue from Digital Services and Distribution segments. However, the company saw the improvement from the following. Advertising revenue was THB 512 million, increasing by 7% year-on-year, mainly due to an increase in utilization rate of all media channels to 47% from 45% in the same period last year. Digital Services revenue was THB 383 million, decreasing by 18% year-on-year, primarily driven by a reduction in lead generation and commission revenue from RCare. Lastly, the Distribution business was THB 265 million, decreasing by 2% year-on-year, due to a change in product mix as Fanslink shift is focused on high margin product. In this period, MIX business has share of profit at THB 68.1 million as we divest from KEX and was supported by a share of profit from JMART of THB 25 million, resulting from the recovery in its operational performance. Lastly, within our MATCH business. Total MATCH operating revenue in this quarter was THB 278 million, increasing 42% year-on-year, mainly from a higher construction revenue from HHT Construction Company Limited of THB 67 million. In this quarter, we recorded a narrow share of loss from investment in RABBIT of THB 12 million, comparing to a share of loss of THB 806 million in the previous year. The improvement was mainly from no recognition of onetime impairment loss on RABBIT investment in SINGER. Moreover, we recorded a share of profit from investment in Thanulux of THB 56 million in this period as a result of Thanulux business expansion. Let's move on to the financial position. Total assets as of 30 June 2024 stood at THB 257 billion, a decrease of 5% from last year. The decrease was chiefly from a decrease in receivables under purchase and installation of operating system agreement of THB 23 million, following the repayment to BTSC by BMA subsidiary KT of Green Line E&M work on the 2nd of April 2024 and the decline in other financial assets of THB 3 billion. This was compensated with an increase in cash and cash equivalent of THB 10 billion and higher receivables under agreement with government authority of THB 2 billion. The total liabilities were THB 192 billion, a decrease of 7% from the last year. The decrease was mainly from a decrease in bills of exchange payable of THB 4 billion and loans from financial institutions of THB 3 billion, as we repaid debt post E&M repayment and the decline in Green Bond debentures of THB 3 billion following the repayment. And total equity was THB 65 billion, a decrease of 2% from the last year, mainly from a decrease in equity attributable to owners of the company of THB 943 million and noncontrolling integrates after subsidiaries also fell by THB 373 million. When looking at the cash position, cash and liquid investment as of 30 of June 2024 remain -- exhibited strength at THB 16 billion. Moving on to the ratio side. Adjusted net debt-to-equity stood at 2.29x. That's derived from the adjusted net debt of THB 149 billion. And as Khun Daniel mentioned earlier, our balance sheet was stronger if excluding government receivable O&M, would bring the adjusted net debt-to-equity down to 1.70x. This indicates a healthy range of liquidity. And this is all about the financial performance. Next, I would like to hand over to Khun Sinatta for group restructuring part.

Thank you, Nong [ Sakthi ], and good afternoon all once again. Allow me to walk you through the summary of the group restructuring. On the 2nd of August, the BTS Group Board of Directors approved a restructuring of the shareholding in some of subsidiaries and associated companies in order to align with the overall business direction. Start with BTS Group. BTS Group will conduct a VTO for all shares not currently held by the company into associate companies. ROCTEC at THB 1 per share and THB 0.6 per share for Rabbit Holdings. We believe that having ROCTEC under BTS Group directly will bring stronger strategic alignment and create more synergy as ROCTEC right now becomes a leading provider of ICT solutions with a focus on transportation sector. Also at ROCTEC itself, there will have more benefit with BTSG NIM when it comes to its project bidding process and fundraising. Also for EBIT, we consider that this is a good investment opportunity for BTS Group to invest more in RABBIT. And we expect a long-term growth from RABBIT business on the back of the recovery in tourism sector. Moreover, the upcoming proceeds from RABBIT asset divestment program will help strengthen RABBIT cash flow and earnings in near future. And coming to the source of fund to acquire both companies will be from the proceeds from BTS Group rights offering, or RO. THB 4.5 per share is the RO price, and we expect to raise up to THB 13.2 billion. The RO requires approval at BTS Group EGM, which will be held on the 30th of September. In the same time, VGI will issue and offer new ordinary shares via a private placement for up to 4 new investor at THB 1.5 per share. The coming proceeds of around THB 13.2 billion will allow VGI to have more flexibility to focus on new opportunities that relate to VGI existing business, including the virtual banking business. Even though BTS Group will decrease the shareholding in VGI, the company still expects to retain operational control over VGI and moreover, VGI will divest ROCTEC to BTS Group. Once again, all VGI-related transactions require shareholders' approval at the VGI EGM on the 15th of October. Next slide, please. Okay. Next slide shows the source of fund and the use of fund under this restructuring. On the left-hand side, you can see we expect to use around THB 8.5 billion to THB 9.9 billion in order to acquire and hold around 70% to 75% stake in ROCTEC and Rabbit Holdings. And on your right side, the source of funds, as I said earlier, to acquire those 2 companies will be from BTS Group RO, up to THB 13.2 billion, and the RO period will be in the third and the fourth week of October. Let's move to the 3M business overview, as usual, start with the MOVE update. In this slide, you can see the Pink and Yellow Line updates. We started the full commencement in Yellow Line in June last year and the Pink Line in January this year. Yellow Line with the ridership is around 34,000 trips and Pink Line is almost 70,000 trips per week day. Despite the losses from these 2 lines, as Khun Daniel mentioned earlier, we already received the first installment of government subsidy in previous year, and we expect the second subsidy for Yellow Line coming in this month and the Pink Line will come after. This will mark another THB 4.8 billion cash inflow from the subsidy portion in this fiscal year. Next slide, Khun [ Savin ] will walk you through MIX business highlights.

Thank you very much, Khun Sinatta. Moving to the MIX business updates. For Advertising business, BTS delivered many innovative and strategic advertising campaigns at its prime locations to customers. And it improved, it adds effectiveness by changing from static media to digital screens, enlarging ads space and improving ads surroundings, therefore, Advertising revenue was THB 547 million (sic) [ THB 512 million ], increased 13% (sic) [ 7% ] year-over-year, with u rate of 47%, which increased 2% year-over-year. For Digital Services business, RCare has collaborated with partner insurers to sell EV insurance premium installment policy and collaborated with visa services agencies to sell travel insurance policies, resulting in over 62,000 policies sold, increased 24% year-over-year. Rabbit Cash has launched capital with various corporates, resulting in outstanding loan of THB 802 million, increased over 200% year-over-year. Next, Rabbit Card's has collaborated with corporates to issue special and collectible cards, resulting in 18.2 million cards total in circulation, increased 10% year-over-year. Move to the Distribution business. Super Turtle has opened 2 Turtle shops, bringing total shops to 23 shops and it opened 1 SuperRich Turtle, bringing total shop to 8 shops. For Fanslink it has changed its product mix to focus on owned brand products, which have higher profit margins, bringing gross profit margin for the company to 19% compared to 12% year-over-year. I would like to hand over the next part to Khun Yada for MATCH business update.

Thank you, Khun [ Savin ]. Let's start with Rabbit Holdings. On the left-hand side, the company invested 75% in Rabbit Life insurance company and, as of June 2024, is ranked #1 market share in terms of sales via the [ sales ] platform. Looking at our yearly target, for 2024, Rabbit Life has hit a new target to reach total gross premium of THB 2.8 billion. And as our first half of this year, it's already reached THB 1.3 billion, achieving almost 50% of its yearly target. To support business growth, Rabbit Life plans to recruit additional 1,000 agents by end of this year. Moving on to Metha Asset Management in the middle of slide. Metha is financial service under RABBIT Holdings and the company does acquire 50% of total stake in November last year. At the end of second quarter, Metha has already achieved yearly target of THB 10 billion in AUM. As Metha was able to capitalize new opportunity, leveraging from Rabbit Holdings and BTS Group's 3M platform under MATCH business. The last one is TNL, which is the first flagship between BTS Group and SAHA Group. The company is now a focused financial services and property development as the divestment of TNLX traditional business was completed at the end of July. For Secured Lending business, the loan portfolio as of second quarter reached THB 6 billion, which is very close to yearly target of THB 6.1 billion. Next, legal balance of management NPL/NPA stood at around THB 3.8 billion. Last, but not least, the residential real estate development for sale business, through investment 7JVs with Noble, has actually accumulated sales at THB 11 billion out of the total project of THB 72 billion (sic) [ THB 22 billion ]. Next, I would like to hand over to Khun Siriphen to update the performance of BTSGIF for the first quarter 2024/'25.

Thank you, Khun Yada. Good afternoon, everybody. Today, I will present the financial performance of BTSGIF for the first quarter of fiscal year '24/'25. In the first quarter, total income of the fund was THB 974 million, dropping by 6.8% year-on-year and by 18.2% Q-on-Q, mainly attributed to the income from investment in NRTA, which decreased by 7.1% year-on-year and by 18.3% Q-on-Q to THB 967 million. Total expenses of the fund were THB 13.9 million, down 14.9% year-on-year and 27.5% Q-on-Q primarily due to a lower fund management fee. Q-on-Q decrease was also influenced by a significant asset appraisal fee in the previous quarter. Profit from net investment was THB 960 million, decreased 6.7% year-on-year and 18% Q-on-Q. In this quarter, the fund recorded loss on investment of THB 550 million from the decrease in the remaining period of the concession agreement. Changes in net assets resulting from operations were THB 410 million. Next slide is the income from investment in NRTA. In the first quarter, farebox revenue was THB 1,603 million, increasing 4.5% on-year but decreasing 4% Q-on-Q. Year-on-year increase came from the ridership growth of 6.8% to 47.8 million trips from higher number of weekday and monthly package promotion but partially offset by a fare decrease of 2.1% year-on-year due to monthly package promotion. Q-on-Q decrease lastly came from a lower number of weekdays caused by various holidays during this quarter. In cost side, cost was THB 637 million, increasing 29% year-on-year and 31% Q-on-Q. Year-on-year increase came from an increase in maintenance costs from rolling stock refurbishment but partially offset by lower employee expense from lower bonus expense than the same quarter last year. Q-on-Q increase was mainly due to an increase in maintenance costs from rolling stock refurbishment and an increase in employee expense for bonus payment in this quarter but partially offset by a decrease in selling expense from lower Rabbit Rewards points from new loyalty program. Income from investment in NRTA was THB 967 million, decreasing 7% year-on-year and 18% Q-on-Q. For the statement of financial position, as of 30th of June 2024, total assets were THB 29.8 billion, the main components were investment in NRTA of THB 28.3 billion decreasing by THB 550 million from March 2024, investment in security and cash of THB 1.1 billion and other assets of THB 356 million. Total liabilities stood at THB 13 million. Net asset value as of 30th of June 2024 was THB 29.8 billion, equivalent to THB 5.1403 per unit. This slide is the core network performance. In the first quarter, ridership was 47.8 million trips, increasing 6.8% year-on-year as a result of a higher number of weekday and monthly package promotion. However, ridership dropped by 4.4% Q-on-Q from various holidays during this quarter, such as Songkran festival and Coronation Day, which was seasonal impact. Average weekday ridership was 600,000 trips, up 6.2% year-on-year. Average fare in the first quarter was THB 33.5 per trip, decreasing 2.1% year-on-year due to monthly package promotion but increasing 0.5% Q-on-Q. This slide is the distribution summary. The fund announced a capital reduction for the first quarter of THB 0.178 per unit. Book closing date is on 27 August 2024, and payment is on 10 September 2024. Total distribution since inception is THB 7.18 per unit in the form of dividend of THB 4.342 per unit and capital reduction of THB 2.838. This is the business update. For the monthly package, since 1st November 2023, BTSC and Turtle 8 Company have been offering various new monthly packages. And on 1st April 2024, this monthly package had been extended and can now be partially redeemed using 700 RABBIT points for THB 100. This package provide additional options for customers to get discounted by a special discount coupon. There are 10 to 35 ride package with a price of THB 33 to THB 39 per trip for adults and THB 26 to THB 31 per trip for students. Next is the loyalty program. Since 1st April 2024, BTSC has announced a new privilege to the Rabbit Rewards loyalty program. Passengers traveling in one station will receive 1 point with the maximum of 8 points per trip. Passengers will receive the 1 point from this when traveling for 4 trips and above per week. The point can be redeemed for free trips, special discount and deals from leading brands. This privilege will be effective for 1 year from 1st April 2024 to 31st March 2025. That's all our BTSGIF. Thank you.