Bangkok Expressway

Bangkok Expressway Plc (BECL)

Above estimates
BECL posted a 3Q13 net profit of Bt886m, up by 88% YoY and 127% QoQ. Stripping out gains on sales of investments (mainly from its investment in CKP) of Bt285m, core earnings would be Bt602m, up by 35% YoY and 60% QoQ. The results were above our estimates and the consensus, due to higher-than-expected income from associates and lower-than-modeled SG&A expenses.
Results highlights
The drivers of the core profit growth were: 1) greater traffic numbers (average daily traffic volume [including NECL] rose by 2% both YoY and QoQ to 1,108,903 trips), 2) increased profit-sharing from TTW (Bt167m in 3Q12 against none in 3Q12 and Bt106m in 2Q13; BECL started realizing equity income on Feb 7, 2013), 3) Bt32m in profit-sharing from its investment in CK Power (against a Bt22m loss in 2Q13, albeit smaller than the Bt34m profit-sharing in 3Q12) and 4) lower SG&A expenses (the SG&A/sales ratio declined to 19.5% from 19.7% in 3Q12 and 21.9% in 2Q13).
Outlook
Traffic should post both YoY and QoQ growth through 4Q13, as the fourth-quarter is normally high season for expressway usage. Historical data show that BECL’s consolidated fourth-quarter traffic volume typically expands by about 3% QoQ. In addition, earnings contributions from associates are expected to improve YoY and be sustained strong QoQ in 4Q13. We, therefore, expect the core profit to expand both YoY and QoQ for the quarter. 
What’s changed?
While we maintain our FY13 core profit forecast of Bt2,139m unchanged, but have revised up our FY13 net earnings projection by 6% to Bt5,314m to reflect the extra gain booked in 3Q13. 
Recommendation
Expectations of growth momentum through 4Q13 together with a strong core earnings expansion profile—an FY13-15 CAGR of 26% against 8% for the SET—will catalyze the share price going forward, we believe. We also like BECL’s long-term earnings growth story. Valuation-wise, it currently trades at an FY14 PER of 10.1x, discounts to the Thai Transport sector average of 13x and the regional mean of 10.4x. Furthermore, its FY14 dividend yield of 5.7% is higher than the Thai Transport sector average of 4.2% and the Asian mean of 5.4%.