Date of Report and Broker Information
Date: October 28, 2024
Broker: Maybank Securities (Thailand) PCL
Investment Thesis
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Interest Rate Cuts Impact
Bangkok Expressway & Metro (BEM) is anticipated to benefit from interest rate cuts by the Bank of Thailand (BOT). As of the third quarter of 2024, 15% of BEM’s debt is tied to floating interest rates. Lower rates should improve BEM’s effective interest rate, leading to potential earnings growth in 2025. With debentures worth THB10 billion due for refinancing, every 10-basis-point drop from the current 3.4% rate could create a 1.5% earnings upside.
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Potential Concession Buyback
The transport and finance ministries of Thailand are considering a flat fare policy for mass transit, funded through an infrastructure fund, with a potential buyback of all rail concessions valued at approximately THB200 billion. For BEM, which holds the Blue and Orange Line concessions, this buyback could bring a cleaner balance sheet with reduced debt if proceeds are used for repayment.
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Upside from Toll Concession Extension
BEM has a potential THB0.8 per share upside from a possible extension of expressway concessions (such as FES and SES) for an additional 22 years. This extension depends on BEM’s role in funding a double-deck expressway project expected to alleviate rush-hour congestion on the expressway network.
Financial Performance and Projections
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Revenue and Earnings Growth
For the fiscal year ending December 2024, BEM projects revenues of THB17.6 billion, with consistent growth projected through 2026, reaching nearly THB20 billion. Earnings before interest, tax, depreciation, and amortization (EBITDA) is expected to grow steadily, reflecting improvements in operational efficiency and ridership growth.
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3Q24 Earnings Preview
Record-high core profit of THB1,069 million is forecast for 3Q24, driven by a 5% YoY increase in revenue, a fare rate hike, and growth in MRT ridership. Margins are also set to expand due to operating leverage, with fixed costs yielding higher profitability as ridership increases.
Ridership and Revenue Streams
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Fare Policy Impact on Ridership
BEM’s ridership on the MRT is projected to increase if the Mass Rapid Transit Authority (MRTA) implements a THB20 flat fare policy, covering BEM-operated metro lines. The Purple Line has already joined this fare cap in October 2023. BEM anticipates this policy will attract more commuters, with ridership expected to grow at least 10% in response.
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Revenue Breakdown
BEM derives its income from both expressways (55% of revenue) and rail services (39% of revenue), primarily within Bangkok. Adjustments to fares every two years, aligned with Bangkok’s consumer price index (CPI) inflation, support revenue stability. Additionally, BEM’s participation in utility companies provides dividend income, contributing to overall financial health.
Financial Risk and Debt Management
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Interest-Bearing Debt Profile
As of FY24, BEM’s interest-bearing debt is THB70 billion, with 85% at fixed rates and 15% at floating rates. The expected benefit from lower rates could add 1.5% to FY25-26 earnings for each 10-bps drop in interest rates. However, increased debt obligations from the MRT Orange line construction could raise interest expenses.
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Leverage and Gearing
BEM’s interest-bearing debt-to-equity ratio stands at 1.8x, leaving room for debt-funded growth without breaching covenants. The gearing level is expected to increase through upcoming projects, such as the MRT Orange Line construction, which will affect future interest expenses and gearing ratios.
ESG Commitments and Corporate Governance
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Environmental Initiatives
BEM monitors the environmental impact of its MRT operations, implementing measures to reduce greenhouse gas emissions and noise pollution. The company has committed to achieving carbon neutrality by 2050 and is actively reducing energy consumption within its operations, especially in lighting and wastewater management at MRT stations.
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Corporate Governance and Anti-Corruption Policies
The company emphasizes strong corporate governance with an independent board comprising 35% female directors. A code of ethics, annual performance assessments, and online anti-corruption training for all employees further underline BEM’s commitment to ethical business practices.
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Employee Development and Social Responsibility
BEM encourages skill development for employees, who participate in an average of 42 training hours annually. Its operational procedures comply with non-discrimination policies, ensuring equal treatment regardless of race, gender, or background.
Valuation and Market Positioning
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Valuation Metrics
As of the report, BEM trades at 29x FY25 price-to-earnings (P/E) ratio, higher than regional peers averaging 22x, which reflects its premium ROE of 10.2% projected for FY25. BEM’s robust earnings and growth from ongoing projects justify its above-average market valuation.
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Revenue and EBITDA Growth
From FY23 to FY26, BEM’s EBITDA is expected to grow at a 10% compound annual growth rate (CAGR), supported by ongoing expansions in the MRT system and increased ridership. The company’s strategic positioning within Bangkok’s transit infrastructure supports long-term growth.
Operational and Strategic Highlights
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Upcoming Projects and Expansions
BEM’s growth strategy involves expanding its transit network and seeking future concessions for additional expressways and MRT lines. The double-deck expressway project, if approved, will significantly reduce traffic congestion and enhance network connectivity, supporting BEM’s goal to be a leader in Thailand’s transportation sector.
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Contingencies and Risks
Potential delays in construction projects or slower-than-anticipated traffic recovery pose risks to future growth. Additionally, interest rate fluctuations, particularly if rates rise contrary to current projections, could impact earnings and project financing.
Summary
Bangkok Expressway & Metro, with strategic investments in Bangkok’s transport infrastructure, anticipates growth through expanded MRT ridership, favorable policy shifts, and targeted interest rate benefits. BEM’s focus on environmental sustainability, corporate governance, and operational efficiency positions it for continued prominence in Thailand’s urban transit landscape.
