TRIS Rating has assigned the company rating of BTS Group Holdings PLC (BTS) at “A” with “stable” outlook. The rating reflects the company’s relatively stable income from the train operation services, dividends received from holding 33.33% in the BTS Rail Mass Transit Growth Infrastructure Fund (BTSGIF), and the potential to be awarded the operation and maintenance contracts (O&M contracts) for the green line extensions. The rating also takes into consideration the company’s strong balance sheet and a significant amount of liquidity on hand. However, these strengths are partially offset by the expected rise in its financial leverage as the company plans to invest in several new mass transit projects and property related businesses. Its expansion into riskier businesses such as property development also raises concerns about the potential impact that could arise from the cyclicality of these businesses on BTS’s financial profile.
The “stable” outlook reflects the expectation that the company will maintain its strong position in the mass transit business. In addition, the company is expected to receive stable dividend income from its mass transit business while the investments in both property and consumer finance businesses should not harm the overall performance of the Group. BTS's potential for a rating upgrade is unlikely in the near term since the company plans to make huge investments over the couple of years. However, if its investments are successful, the net effect would be positive for the credit rating. The rating and/or outlook could be revised downward if its total debt to EBITDA ratio rises to higher than 3.5 times on a sustainable basis, which could be the result of aggressive debt-funded investments and/or the significantly deteriorated operating performance of the Group.
BTS (formerly known as Tanayong PLC) was established in 1968 as a property development company. BTS became a holding company after it acquired Bangkok Mass Transit System PLC (BTSC) in 2010. In 2013, BTSC sold its net farebox revenue for its remaining concession period (2013-2029) to BTSGIF for Bt61 billion. BTS also invested 33.33% in BTSGIF.
Currently, BTS engages in four main lines of business: mass transit, media, property development, and services. BTS’s EBITDA (earnings before interest, taxes, depreciation, and amortization) for fiscal year 2015 (FY2015 - April 2014-March 2015) and the first nine months of FY2016, were Bt3.4 billion and Bt2.3 billion, respectively. Mass transit business accounted for approximately 60% of EBITDA; while the media business contributed about 40%. EBITDA contribution from other businesses was rather minimal.
The company operates the mass transit business through its own subsidiary, BTSC. BTSC provides operation and maintenance (O&M) services for the BTS extension routes for the Silom and Sukhumvit lines under a 30-year O&M contract with Krungthep Thanakom Co., Ltd. (KT), a subsidiary of Bangkok Metropolitan Administration (BMA). For its media business, the company sells advertising and retail space on the BTS Skytrain through its subsidiary, VGI Global Media PLC (VGI). VGI also offers other types of out of home media, especially in Bangkok’s prime office buildings. For the property development business, the company holds 35.6% in U City PLC. In addition, BTS formed a strategic alliance with Sansiri PLC (SIRI) to develop condominium projects nearby mass transit stations. The company also has recurring income from its rental properties, which include a golf course, three hotels, and an office building. The company’s expansion into the property development businesses has raised concerns over the business risk profile of the Group since such business is rather cyclical and sensitive to the slowdown in domestic economy.
In the service business, the company provides E-money services through Rabbit card and owns a chain of premium Chinese restaurants, Chef Man. Additionally in 2015, the company joined with AEON Thana Sinsap (Thailand) PLC (AEON) in the consumer finance business.
BTSG’s business profile is satisfactory, underpinned by stable and reliable dividends from BTSGIF. The O&M service contract also provides a predictable cash flow and a good profit margin. In addition, revenue from advertising on the BTS Skytrain has continued to grow, despite the economic slowdown. During FY2012-2015 the company posted significant growth in its core businesses; revenue from O&M services grew by 33% per annum while media sales on the BTS Skytrain increased by 17% per annum. However, in FY2014, revenue (excluding discontinued business) jumped by 46% due to the revenue recognized from condominium unit sales. In the first nine months of FY2016, revenue contracted by 22% year-on-year (y-o-y) to Bt4,000 million. The drop came because VGI stopped advertising in modern trade outlets. BTS’s operating profit margin remains high, even after the company sold the net farebox revenue to BTSGIF. The operating profit margin was around 60% during 2012 and 2013, but fell to 35%-40% in 2014 and 2015. In the first nine months of 2016, BTS’s operating profit margin declined to 29% as a result of higher administrative expense from non-recurring expense.
BTS has a healthy balance sheet after the BTSGIF transaction. Total debt (including proportionate debt from JVs) decreased drastically from Bt26,844 million in 2012 to Bt7,729 million at the end of December 2015. As a result, the total debt to capitalization ratio improved from 42.1% in 2012 to 13.4% at the end of December 2015. Going forward, its debt to capitalization ratio is expected to rise since the company plans to invest in more mass transit projects and other businesses. The company plans to invest approximately Bt16,000 million in mass transit projects and other businesses during 2017-2020. In addition, BTS has budgeted approximately Bt7,500 million for the property development business and Bt4,750 million for the consumer finance business. Thus, its debt to capitalization ratio may be raised to around 30%-35% during the investment period.
BTS’s liquidity profile is strong. For the first nine months of 2016, the company reported funds from operations (FFO) of Bt1,918 million. The FFO to total debt ratio and the EBITDA interest coverage ratio stood at 41.8% (annualized, from the trailing 12 months) and 12.8 times, respectively. As of December 2015, the company had cash on hand of Bt1,827 million and securities available for sale and trading worth Bt13,209 million. The company has undrawn credit facilities of around Bt11,480 million, with long-term debt repayment obligations of around Bt3,076 million due during the next 12 months. As of December 2015, the outstanding short-term obligations were Bt2,415 million.
TRIS Rating Co., Ltd./www.trisrating.com Contact: santaya@trisrating.com, Tel: 0-2231-3011 ext 500/Silom Complex Building, 24th Floor, 191 Silom Road, Bangkok 10500, Thailand ? Copyright 2016, TRIS Rating Co., Ltd. All rights reserved. Any unauthorized use, disclosure, copying, republication, further transmission, dissemination, redistribution, or storing for subsequent use for any purpose, in whole or in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited, without the prior written permission of TRIS Rating Co., Ltd. The credit rating is not a statement of fact or a recommendation to buy, sell or hold any debt instruments. It is an expression of opinion regarding credit risks for that instrument or particular company. The opinion expressed in the credit rating does not represent investment or other advice and should therefore not be construed as such. Any rating and information contained in any report written or published by TRIS Rating has been prepared without taking into account any recipient’s particular financial needs, circumstances, knowledge and objectives. Therefore, a recipient should assess the appropriateness of such information before making an investment decision based on this information. Information used for the rating has been obtained by TRIS Rating from the company and other sources believed to be reliable. Therefore, TRIS Rating does not guarantee the accuracy, adequacy, or completeness of any such information and will accept no liability for any loss or damage arising from any inaccuracy, inadequacy or incompleteness. Also, TRIS Rating is not responsible for any errors or omissions, the result obtained from, or any actions taken in reliance upon such information. All methodologies used can be found at http://www.trisrating.com/en/rating_information/rating_criteria.html.