Bangkok Expressway

Bangkok Expressway Plc (BECL)

Below estimates
BECL posted a 2Q13 net profit of Bt390m, down by 62% YoY and 88% QoQ (huge extra gains were booked in 2Q12 and 1Q13). Stripping out a gain on the sales of an investment of Bt14m, core earnings would be Bt376m, up 48% YoY but down 27% QoQ. The result was somewhat below our estimate and the consensus, due to lower-than-expected income from associates.
Results highlights
The key drivers of the YoY core profit growth were: 1) greater traffic numbers (average daily traffic volume [including NECL] rose 3% YoY to 1,083,095 trips), 2) profit-sharing from TTW (against none in 2Q12; BECL started realizing equity income on Feb 7, 2013), 3) smaller losses from its investment in CK Power (Bt22m in 2Q13, shallower than the Bt29m posted for 2Q12) and 4) lower SG&A expenses (the SG&A/sales ratio dipped to 21.9% from 23.1% in 2Q12).
Meanwhile, the key factors behind the QoQ core earnings contraction were: 1) weaker traffic numbers (down 4% QoQ on seasonality), 2) less profit-sharing income from TTW (Bt106m against Bt137m in 1Q13), 3) loss-sharing from CK Power of Bt22m (against profit-sharing of Bt27m in 1Q13) and 4) higher SG&A expenses (the SG&A/sales ratio rose to 21.9% from 21.1% in 1Q13).
Outlook
Traffic should sustain YoY growth through 3Q13 and the third-quarter is normally high season for expressway usage. Historical data show that BECL’s consolidated third-quarter traffic volume normally expands by about 4% QoQ. In addition, the earnings contribution from associates is expected to improve both YoY and QoQ in 3Q13. We, therefore, expect the firm’s 3Q13 core profit to expand both YoY and QoQ. 
What’s changed?
Even though 1H13 core earnings represent only 42% of our FY13 forecast of Bt2,139, we maintain our model unchanged, as BECL’s 2H13 numbers are expected to rise significantly HoH. 
Recommendation
In our view, the 2Q13 earnings disappointment may generate negative sentiment toward the stock in the near-term. However, expectations of better earnings in 2H13 should catalyze the share price later this year. We like BECL’s long-term earnings growth story. Valuation-wise, it currently trades at an FY13 PEG ratio of 0.4x, a discount to the Thai Transport sector average of 0.6x.