Bangkok Expressway and Metro

Bangkok Expressway and Metro Plc (BEM) 

 

Investment thesis

In our view, BEM’s strong earnings growth profile is to come from the opening of expressway and mass transit routes. A 21% core profit growth in 2016 and a 21% CAGR during 2015-17 will be the strongest among Thai ground transport operators and higher than the broad SET’s core earnings growth of 11% for 2016 and a 9% CAGR during 2015-17, this should catalyze the share price going forward. Also, the completion of talks with MRTA over the Blue Line extension project in 1H16 should also be a near-term catalyst for the price. And, there is scope for upside to long-term earnings from rights to operate the Blue Line extension and the commercial development business for the new mass transit lines. We therefore initiate our coverage with a BUY rating and a YE16 target price of Bt5.90, based on the SOTP methodology.    

Year 2016 … to be a glorious year for BEM 

BEM should shine in 2016 as it will be the first year of service for the new expressway project (Si Rat – Outer Ring Road Expressway [SOE]), which is scheduled to open in 3Q16. In addition, BEM will start revenue recognition from its O&M contract for the new mass transit project (Purple Line, Bang Yai – Bang Sue), set to open officially on 12 Aug 2016. 

Opening of projects to drive FY16 strong earnings growth

The opening of expressway and mass transit projects will drive BEM’s strong earnings growth going forward. The traffic from the new expressway, SOE, and the new mass transit project, the Purple Line, will capture new traffic volume and ridership, and feed traffic and ridership to the existing expressway system and the first and only existing line of the MRT system. We therefore expect the firm to post core profit growth of 21% in 2016 and a CAGR of 21%, FY15-17. 

Blue Line extension … substantial earnings upside

Apart from new projects that are to come on stream this year, BEM is seeking for an opportunity to operate the Blue Line extension. BEM expects negotiations with MRTA to be completed in late 1Q16 or early 2Q16. We think that the completion such negotiations will be a near-term catalyst for the BEM share price. Also, if the firm is assigned as operator of the extension, there will be a substantial scope for earnings upside for BEM. We preliminarily estimate that long-term earnings will rise 13% on average. 

Good long-term growth prospects in sight

There are a lot of potential growth opportunities for BEM in the long term, especially in running the mass transit system. Large numbers of new mass transit system projects are under construction or are under consideration by the government, whose progress is concrete and probable, for instance, the Orange Line (Taling Chan – Min Buri) and the Purple Line extension (Bang Sue – Rat Burana).