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Edited Transcript of BTS.BK earnings conference call or presentation 20-Nov-19 7:30am GMT

Q2 2020 BTS Group Holdings PCL Earnings Presentation

Chatuchak Nov 26, 2019 (Thomson StreetEvents) -- Edited Transcript of BTS Group Holdings PCL earnings conference call or presentation Wednesday, November 20, 2019 at 7:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Daniel Ross

BTS Group Holdings Public Company Limited - CIO & Head of IR

* Sataporn Vongphaibul

* Siriphen Wangdumrongves

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Conference Call Participants

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* Nantarach Atthawong

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Presentation

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Sataporn Vongphaibul, [1]

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(foreign language)

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Daniel Ross, BTS Group Holdings Public Company Limited - CIO & Head of IR [2]

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Hi. Good afternoon, everyone, once again, and welcome to what must be one of the last earnings meetings for this quarter earnings today. We're going to be talking about the 3-month and 6-month results ending 30th of September for BTS Group. And as is the usual format, we will follow with BTSGIF as well as a Q&A session. And as usual, we are fully supported by the media investor relations team as well as Khun Surayut from the Property side. So please feel free to ask questions if you haven't had a chance to ask them at the previous analyst meetings.

Jumping into the second quarter highlights. You can see the same theme really as previous quarters. We have solid growth in profitability, despite a reduction in operating revenue of 28%. You'll see that operating EBITDA was up 30% year-on-year, and recurring net profit was up 36% year-on-year. And you see those -- therefore, the earnings momentum for this quarter was in excess of our 25% CAGR for the 5-year period.

On the balance sheet side, gross debt now reaches THB 77 billion, increasing quarter-by-quarter. However, the balance sheet still remains strong. Cash and liquid investments are at THB 18.3 billion and leverage relatively low with an adjusted net D/E of 0.9x. For those who are sort of more familiar with our projections, we expect that to increase to around 1.4, 1.5x before coming down quite quickly thereafter.

On the cash flow basis, we'll go into detail later on, but the short story is, we've tapped both the equity and the debt capital markets, and most of that investment is predominantly in the Mass Transit segment.

Moving on now to the second quarter overview, starting with the P&L snapshot. Operating revenue down 28% to THB 11.3 billion. The chart in the bottom right-hand corner shows graphically where that's come from, primarily from the Mass Transit business. And once again, that will come in the later slides' explanation, but it's primarily due to a slowdown in the progress of the Pink and Yellow lines. However, when you look at gross operating profit, you see it's up 30% to THB 2.39 billion, and operating EBITDA 9:56 PM up 30% to THB 1.8 billion. Recurring net profit also up 36% to what is a record high THB 1.13 billion for the group. So very healthy increases year-on-year. And the business -- the reasons for those, as I say, will be explained on each slide later on. A few factors worthy of mentioning on the net income side is contributing factors to the downside is the higher finance costs that are higher debt, essentially around about THB 180 million increase. That was offset largely through higher equity income, the share of income in associates and joint ventures, and the net profit was also helped further by higher dividend income as well as no repeat of extraordinary costs in relation to the World Cup sponsorship last year.

Margin-wise, you see that for the second quarter, 21% operating margin for GOP. Recurring net profit 9%, operating margin essentially increases year-on-year, again, because of the lower contribution of the Mass Transit revenue, which has a lower margin that's been deleted out.

So on the Q-on-Q basis, you see it's a smoother pattern. Actually, revenue increased 25% year-on-year. And as a result of that, the margins actually weakened slightly. On the first half figures, I won't go through those, but one point worth making is, net profit for -- recurring net profit for the first half, THB 2.1 billion, which comes to around about 58% of the analyst consensus for the full year. Revenue contribution, 80% from Mass Transit this quarter followed by 14% on the Media side.

Moving onto the 6-month cash flow, not a great movement in cash. At the beginning of the 6 months, THB 4 billion net cash at the end, THB 4.2 billion in cash, that masks some changes within. You can see THB 12 billion of financing cash flows used to fund THB 7 billion of operating cash flow use as well as THB 5 billion of investing cash flow use. On the THB 7 billion operating cash flows, as we say every quarter, this includes for accounting reasons, a lot of investment cash flows. So if you like, it understates that number. And likewise, on the investing cash flow, as you see this quarter, we had net investment in the Pink and Yellow lines of THB 5.8 billion as well as about THB 3.9 billion invested in investment properties, which is actually a piece of land on a future Mass Transit line. That was offset through cash received from the sale of land at Bayswater of THB 2.3 billion as well as sales of THB 1.8 billion from treasury side. So that ended up with a THB 4.2 billion ending cash, which added to about THB 14 billion liquid investments left us with THB 18 billion of cash and liquid investments.

Onto the Mass Transit side, Jane? Thank you.

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Sataporn Vongphaibul, [3]

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Thank you, Khun Daniel, and good afternoon, everyone. As usual, we'll begin the segmental performance with the Mass Transit business on Page 8. Total Mass Transit revenue in the second quarter of fiscal year 2019/'20 was THB 9.1 billion, representing a decrease of 36% or THB 5.1 billion year-on-year from the reduced recognition of construction revenue for the Pink and Yellow lines of THB 7.4 billion to THB 4.4 billion according to progress of work completion. However, this construction revenue still contribute the largest proportion of total Mass Transit revenue of 48% and followed by 35% from services revenue for the provision of E&M works and the train procurement service for Green Line extensions of THB 3.2 billion, which increased significantly by 107% or THB 1.6 billion year-on-year.

O&M revenue in this quarter also rose sharply by 92% or THB 414 million year-on-year to THB 866 million, mainly supported by the recognition of O&M fee from the full opening of the Southern Green Line extension since December last year as well as the opening of one station of the Northern Green Line extension at Ha Yaek Lat Phrao station since August this year. And in this quarter, we've reached the new highest record on quarterly ridership of 63.9 million trips, which rose by 4.4% year-on-year. For more details, Khun Siriphen will explain in the BTSGIF session.

Moving onto the cost side. Mass Transit costs also decreased by THB 6 billion to THB 7.6 billion, largely from lower recognition of construction costs for the Pink and Yellow lines. Operating EBITDA margin in this quarter increased to 17% from 7.6% in the previous year as a result of the aforesaid lower recognition of construction revenue. But if we exclude the revenue costs and interest income related to the Pink and Yellow line constructions as well as the provision of the E&M works and train procurement service for the Green Line extensions, the operating EBITDA margin from Mass Transit business will be 66.9%.

Next, moving onto the Media business. In this quarter, Media business posts another new highest revenue of THB 1.6 billion, which represent a growth of 32% or THB 390 million year-on-year. This strong growth was mainly supported by higher revenue in the digital services segment. From the pie chart on the top right-hand side, you will see that 37% of total Media revenue or THB 597 million was from Digital Services business. The strong growth of 102% year-on-year was driven by the revenue recognition of VGI Digital Lab, higher revenue from Rabbit Group and also benefit from the full quarter consolidation of Transit Group by MACO.

Out-of-Home media contribute another 63% of total Media revenue or THB 1 billion, rising by 10% or THB 88 million year-on-year. The growth was mainly driven by the positive impact from the first-time consolidation of international advertising by MACO in Outdoor media segment. Media costs increased by 73% year-on-year from THB 457 million to THB 792 million, chiefly from the consolidation of international advertising and full quarter consolidation of Trans. Ad Group. Media operating EBITDA margin in this quarter declined to 33% from 44.2% in the previous year, largely from the aforesaid consolidation of Trans. Ad Group, which has lower margins than other Media segments.

Next is the Property business. Total Property operating revenue during the second quarter was THB 100 million, an increase of 15% or THB 13 million year-on-year, chiefly from commercial property revenue, which now mainly comprises of revenue from Thana City Golf & Sports Club. Total operating costs rose by 11% or THB 8 million year-on-year to THB 81 million. And in this quarter, we recognized a narrow share of net loss from investment in U City of THB 7 million compared to a share of net loss of THB 99 million in the previous year, mainly because U City did not recognize its impairment loss, which was recognized in U City's financial statement during the third quarter of last year.

Now let's move onto the financial position. Total assets as of 30 of September 2019, stood at THB 163 billion, an increase of THB 19 billion or 13% from 31st of March 2019. The increase was mainly from increase in receivables related to Mass Transit of THB 14 billion, other long-term investments of THB 5 billion and investment properties of THB 5 billion, mainly from land acquisition. And the increase was partially offset by a decrease in current investments and investment in derivative instruments of THB 4.7 billion as well as a decline in advance to contractors and for acquisition of assets of THB 2.5 billion.

Total liabilities increased by 6% or THB 6 billion to stand at THB 98 billion, mainly from an increase in long-term debentures due to the newly issued THB 13 billion green bond in May 2019 as well as an increase in long-term loans from financial institutions of THB 8 million, mainly from the drawdown of syndicated loans related to the Pink and Yellow lines. But the increase was partly offset by a decline in short-term loans from financial institutions and bills of exchange payable of THB 16 billion.

Total equity also increased from 31st of March by THB 13 billion or 26% to THB 66 billion, mainly from the exercise of BTS warrant 4 of THB 9 billion as well as an increase in surplus from the changes in the ownership interest in subsidiaries of THB 3.3 million and noncontrolling interest in subsidiaries of THB 1.6 million, mainly from the company decreasing its shareholding in VGI.

On the leverage side, our debt decreased by THB 9 billion Q-on-Q, and we remain low leveraged position with adjusted net debt to equity of 0.9x during this quarter.

Now let's move onto the business update on Mass Transit on Page 13, starting with the progress of our secured lines. For the Northern Green Line extension, apart from the first station that we have opened back in August at Ha Yaek Lat Phrao station, we expect to open another 4 more stations to Kasetsart University in December this year, and we expect to open the rest -- the full operation of the Northern Green Line extension by next year. And for the Pink and Yellow lines, the civil constructions is underway and was 46% complete as of October, and we target to open the main lines of the Pink and Yellow lines in October 2021. And for the Gold Line Phase 1, the construction is also underway as well. As of October, 47% of civil work has been complete, and we remain to target operation in September next year. And back in August this year as well, we were -- BGSR JV, which BTS Group has 40% stake in this consortium was announced as the best bid winner for Intercity Motorway Project. And right now, we are awaiting the contract signing, which is expected in early next year.

And next, I'll hand over to Khun Nantarach for Media update. Thank you.

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Nantarach Atthawong, [4]

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Thank you, Khun Sataporn. Start with advertising business. On 30th October 2019, the Board of Director of MACO approved the acquisition of a 50% stake in Hello Bangkok LED with a total investment of THB 1,950 million with the source of fund from issuance, PP and short-term loans. Secondly, approved a private placement to Plan B, 1,080 million shares at THB 1.44 per share, raising a total of THB 1,553 million from the share issue. So Plan B will hold 19.96% in MACO after this transaction complete. And MACO will assign Plan B to manage the outdoor domestic assets, which comprise of steady and digital billboards, straight furniture and flyover. After the completion, MACO will fully expand internationally. However, these transactions are subject to shareholders' approval by the end of this year.

For payment business, the company continued to experience strong user growth. Currently, the number of Rabbit Card reached 12.2 million cards and Rabbit LINE Pay serves more than 6.5 million users. The growth is driven by an expansion of Rabbit touch points to several transportation modes, including BTS new lines, buses in Chiang Mai, Phuket, Nonthaburi and Salaya as well as piers and boats along the Chao Praya River.

The last one is logistics business. Kerry continued expanding its network, now reaching more than 10,000 service locations, which increased from 5,000 service locations in the first quarter of this year and handling the highest parcel at 2 million per peak day. Moreover, Kerry launched brand-new service called BTS Express Service at 4 BTS stations, which are Siam, Sala Daeng, Phrom Phong and Thong Lo station, where over a 1 million BTS passengers able to drop off their parcels from within the stations and to other stations and anywhere to 100 meters around those stations within 3 hours.

Next, I would like to hand over to Khun [Nachanok] for updating about Property business.

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Unidentified Company Representative, [5]

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Thank you. Khun Nantarach. Let's move onto the Property update. This is VERSO International School, the international school that offers a personalized educational experience, which designed with students' interests and passions based on American educational system, and it's a 50-50 joint venture between U City and Hong Kong Partner located in Thana City. We have successfully launched this school in our first press conference in September 2019 and received a good response from all parties. The construction as of September 2019 was at 70% completed. We have already recruited teachers and staff and already accepting students' applications. The school will be ready to open for the first semester in August 2020.

For Roi Chak Sam project. It is aimed to transform this beautiful historical building into a luxurious, 5-star hotel with world-class dining experience that locates along Chao Praya River. We had our groundbreaking ceremony in October 2019 and have started the process of archaeological excavation with the Fine Arts Department of Thailand.

This is the Property updates for U City. Let me pass on to Khud Siriphen for BTSGIF update.

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Siriphen Wangdumrongves, [6]

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Thank you, Khun [Nachanok]. Good afternoon, everybody. Today, I will present the financial performance of BTSGIF for the second quarter of fiscal year 2019/'20. In the second quarter, total income of the fund was THB 1.35 billion, up 9.2% year-on-year and 12% Q-on-Q, mainly from higher income from investment in net farebox revenue, which grew to THB 1.34 billion.

Total expenses of the fund were THB 28 million, down 2.9% year-on-year from lower fund management fee. However, total expenses lost by 18% Q-on-Q from both quarters explained for AGM Meeting and capital return and higher incentive fee. Net investment income was THB 1.33 billion, up 9.5% year-on-year and 11.9% Q-on-Q. In this quarter, the fund recorded loss on valuation of investment of THB 314 million, which is noncash expense from the evaluation in the fair value of investment in NRTA of THB 300 million from THB 58.8 billion in the previous quarter to THB 58.5 billion from the decrease in the remaining period of NRTA. And recognition of the investment cost for Suksa Wittaya station of THB 14.6 million.

Changes in net assets resulting from operation were THB 1.01 billion. Adding back excess liquidity from loss on investment of THB 300 million, total distribution available to unitholder will be THB 1.31 billion or THB 0.226 per unit, increasing 8.3% year-on-year and 10.7% Q-on-Q. For the first half of 2019/'20, total income of the fund was THB 2.56 billion, up 6.3% year-on-year from the increase in income from investment in NRTA.

Total expenses of the fund were THB 51 million, down 17% year-on-year, primarily from lower incentive fee and fund management fee. Net investment income was THB 2.51 billion, up 6.9% year-on-year. The fund recorded loss on valuation on investment of THB 614 million from the valuation in fair value of investment in NRTA of THB 600 million and recognition of investment cost for Suksa Wittaya station up THB 14.6 million. Changes in net assets resulting from operation were THB 1.9 billion.

Further income from investment in NRTA in the next slide. In the second quarter, farebox revenue was THB 1.84 billion, increasing 4.4% year-on-year and 8.2% Q-on-Q. Year-on-year increase was from ridership growth by 4.4% year-on-year to 63.9 million trips from the opening of Green Line extension, Southern Line from Samrong station to Kheha station in December last year and Northern Line from Mochit station to Ha Yaek Lat Phrao station in August this year and low base effect from the train service disruption last year.

Q-on-Q increase was from ridership growth by 7.2% Q-on-Q from more weekday in this quarter, newly opened station Ha Yaek Lat Phrao and impact from free trip during Royal Coronation Ceremony of King Rama X on May 5 to May 6 this year in the previous quarter.

O&M costs were THB 492 million, decreasing 6.7% year-on-year and 1.2% Q-on-Q. Year-on-year increase was due to lower employee expenses from lower allocation costs from the opening of new line extension, which is economy of scale and lower selling explained as there were several CSR and public relation event last year and lower administrative expense, mainly the decrease in ticket spend and donation spend, lower allocation cost for employee health insurance. Q-on-Q decrease was largely from no bonus pay to employees in this quarter, but partially offset by increase in administrative expense, mainly from payment of employee health insurance this quarter and receiving insurance claim and higher CapEx from rolling stock of THB 79 million compared to THB 58 million last quarter.

Income from investment in NRTA was THB 1.35 billion, up 9.2% year-on-year and 12% Q-on-Q.

For the first half of this year, farebox revenue was THB 3.54 billion, increasing 4.1% year-on-year due to ridership growth by 4.4% year-on-year to 123.6 million trip, which include free trip during Royal Coronation Ceremony of 1.1 million tourists, an impact from the cognition of free-trip allowance to passenger from train services disruption last year of THB 19 million. O&M costs were THB 991 million, decreasing 0.9% year-on-year, primarily due to lower employee spend from lower allocations cost from opening of new Green Line extension and lower selling expense as there was several CSR and public relation event last year, but partially offset by higher CapEx, which consists of rolling stock of THB 137 million compared to radio upgrade of THB 71 million and rolling stock of THB 3.9 million last year.

Income from investment in NRTA was THB 2.56 billion, up 6.2% year-on-year. For the balance sheet, as of 30 of September, total assets stood at THB 59.9 billion. The main component were investment in NRTA of THB 58.5 billion, decreased by THB 300 million from last quarter. Investment in security at fair value and cash at bank of THB 1.1 million -- THB 1.1 billion and other asset of THB 257 million.

Total liabilities stood at THB 32 million, increasing from accrued expense for Suksa Wittaya station of THB 14.6 million. NAV was THB 59.9 billion or THB 10.3415 per unit. As of 30 of September, the fund had retained earnings. Thus, in this quarter, the fund can meet dividend payment.

For the core network performance, ridership in the second quarter was 63.9 million trips, a new historical record, up 4.4% year-on-year and 7.2% Q-on-Q. Year-on-year increase was mainly from the opening of Green Line extension, Southern Line from Samrong station to Kheha station in December last year and Northern Line from Mo Chit station to Ha Yaek Lat Phrao station in August this year and low base last year due to train service disruption. Q-on-Q increase was from more weekday in this quarter as there was several holiday in last quarter such as Songkran Festival, National Labor Day and Coronation Day and the opening of Ha Yaek Lat Phrao station. Average fare in the second quarter was THB 28.8 per trip, almost unchanged year-on-year, but decreased 0.9% Q-on-Q. Average weekday ridership in the second quarter was 782,000 trips, increasing 4.6% year-on-year and 3% Q-on-Q.

For the distribution, distribution for the second quarter is THB 0.226 per unit, dividing into dividend payment of THB 0.103 per unit and capital return of THB 0.123 per unit. Book closure date is on 28th of November, and payment is on 13 December.

For the business update, Suksa Wittaya station. For the construction of Suksa Wittaya station, BTSC has already received a construction permit from BMA. The contractor has entered the site and began the construction. The construction will take about 18 months to complete and 2 months for installation of E&M system, then estimate to be able to install it around early 2021.

For S6 station. EIA has been considered by ONEP by the expert commission for the second [line] and will report soon at national environment board for acknowledgment, allow at the end of this month.

That's all for BTSGIF. Thank you.