TRIS Rating has assigned the company rating of Bangkok Mass Transit System PLC (BTSC) at “A” with “stable” outlook. The rating reflects BTSC’s proven track record as the first electric train operator in Thailand, its solid financial profile, the relatively high and stable profit margin from the train operations and media businesses, and the potential to be awarded the operation and maintenance contracts (O&M contracts) for the green line extension. However, BTSC’s financial profile is expected to soften due to its plans for large capital expenditure in new mass transit projects and an aggressive dividend payout policy. In addition, BTSC is considered the core business unit of BTS Group Holdings PLC (BTS) and has been the key cash flow and profit contributor for BTS. Therefore, the credit profiles of BTSC and BTS are closely linked.
The “stable” outlook is based on the expectation that BTSC will be able to maintain its stable cash flow and profit margin in the train operation and media businesses. Since BTSC is considered the core subsidiary of BTS, BTSC’s rating will be aligned with the rating of BTS. Any change in BTS’s credit rating will also impact the rating of BTSC.
BTSC was established in 1992 to build and operate the Bangkok Mass Transit System (BTS Skytrain) under a 30-year concession (from 1999-2029) awarded by the Bangkok Metropolitan Administration (BMA). Under the terms of the concession, the company has the right to collect fares and undertake all commercial activities on the BTS Skytrain lines (the core lines), covering 17 kilometers (km.) of the Sukhumvit line (Mo chit-On nuch) and 6.5 km. of the Silom line (National stadium-Taksin Bridge). BTSC was acquired by BTS in May 2010. As of December 2015, BTS held a 97.46% stake in BTSC. BTSC was awarded a 30-year O&M contract (from 2012-2042) from Krungthep Thanakom Co., Ltd., a wholly-owned subsidiary of BMA. The contracts call for BTSC to provide O&M services for the extensions of the Silom line (Wong Wian Yai-Bang Wa) and the Sukhumvit line (On Nut-Bearing) plus the core lines after the end of the concession in 2029. In 2013, the company sold its future net farebox revenue from the core lines to the BTS Rail Mass Transit Growth Infrastructure Fund (BTSGIF) for Bt61 billion.
For commercial activities, BTSC’s subsidiary, VGI Global Media PLC (VGI), provides media services on the BTS Skytrain. VGI expanded its scope of business and now offers other out-of-home media services. In addition, the company provides a ticketing system through its 90% holding subsidiary, Bangkok Smartcard System Co., Ltd. For the first nine months of fiscal year 2016 (FY2016 - April-December 2015), BTSC’s revenue comprised media services (51%), O&M service fees (41%), and other services contributed the rest.
After the company sold the net farebox revenue of the core lines to BTSGIF, BTSC’s revenues dropped substantially. Revenue (excluding discontinued business) dropped from Bt5,281 million in 2011 to Bt2,954 million in 2012, and then gradually increased to Bt4,952 million in 2015 due to the strong growth of both O&M services and the media segment. Revenue declined by 22% in the first nine months of 2016, after VGI terminated its advertising business in modern trade outlets.
BTSC’s operating profit margin tumbled from more than 80% during 2012 and 2013 to 45%-50% in 2014 through the first nine months of 2016. However, its capital structure improved after the BTSGIF transaction. Total debt decreased drastically from Bt14,916 million in 2012 to Bt2,210 million at the end of December of 2015. As a result, the total debt to capitalization ratio decreased from 30.2% in 2012 to 7.9% at the end of December 2015.
The company’s liquidity profile is strong, supported by BTSC’s cash on hand of Bt1,011 million and short- and long-term investment worth Bt5,677 million. Despite BTSC’s cash flow substantially declined after the BTSGIF transaction, its funds from operations (FFO) to total debt ratio improved from 43.3% in 2013 to 72.6% in 2015 following debt repayments. The earnings before interest, tax, depreciation and amortization (EBITDA) interest coverage ratio increased from 6.6 times in 2013 to 8.1 times in 2015. For the first nine months of FY2016, the company reported FFO of Bt1,222 million. The FFO to total debt ratio and the EBITDA interest coverage ratio stood at 101.6% (annualized, from the trailing 12 months) and 9.3 times, respectively. As of December 2015, the company and subsidiaries had undrawn credit facilities of around Bt3,950 million, with long-term debt repayment obligations of around Bt1,378 million due during the next 12 months. As of December 2015, the company’s outstanding short-term obligations were Bt650 million.
Going forwards, BTSC’s financial profile is expected to weaken from the current level. For 2017-2019, TRIS Rating expects revenue will range between Bt5,000-Bt6,500 million. BTS’s operating profit margin is forecast to remain high at over 40%. The company set a budget of Bt11,456 million for new mass transit projects during 2017-2021. Hence, the total debt to capitalization ratio is expected to increase gradually to around 20% by 2019. Its net debt to EBITDA is expected to rise but should stay lower than 3.5 times.
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