Company Update BANGKOK EXPRESSWAY AND METRO PCL (BEM) 23 July 2019 Focus on what have been seen ...... BUY ► Both extension phases of MRT Blue Line have a high potential as they 12M TP: Bt12.50 pass through community areas, tourist sites with high population Closing price: Bt10.70 density. Upside/downside +16.8% ► We see the opening of the extension operation will contribute to profit for the rest of the 2019 and continue to 2020. Sector Transportation & Logistics ► For the worst case in the review of draft agreement to extend the Paid-up shares (shares mn) 15,285 concession, we estimate that it will not affect BEM as there are several Market capitalization (Bt mn) 168,135.00 solutions and BEM would not be disadvantage. Free float (%) 52.93 ► The issue of adjusting the mass transit fare, the profit of which the YTD daily avg. turnover (%) 690.07 government gets does not worth it. We believe it could not occur in a 12-mth trading range (Bt) 12.00 / 7.90 short period of time. ► We still like BEM as a stock for long-term investment. Major shareholders (%) CH Karnchang PCL (CK) 30.89 The extension of MRT Blue Line is must to a follow-up: We still like BEM as Mass Rapid Transit Authority of Thailand: MRTA 8.22 Thai NVDR 6.91 a stock that is expected to have an outstanding performance growth from the opening of Extension Phases of MRT Blue Line. We see it as a potential route as it is an extension that remains in the city area, especially Phasi Charoen District, Financial Highlights Year to Dec 31 2016 2017 2018 2019F 2020F Bangkok Yai District and Samphanthawong District where there is a high Sales 13,104 15,153 15,614 16,019 18,918 Norm. net profit 2,582 3,142 2,385 3,712 5,082 population density per square meter compared with other routes of the extension Net profit 2,606 3,123 4,862 3,688 5,057 phase which are mostly expanding to outer city area where there is less Normalized EPS (Bt) 0.17 0.20 0.15 0.24 0.33 Net EPS (Bt) 0.17 0.20 0.32 0.24 0.33 population density per square meter. However, there is a high growth rate of Normalized profit growth (%) 84.0 21.7 -24.1 55.6 36.9 Net profit growth (%) -1.7 19.9 55.7 -24.2 37.1 passengers. The performance will start to grow significantly in 2H19 when Normalized EPS growth (%) 90.4 21.3 -24.2 55.9 37.1 EPS growth (%) -1.7 19.9 55.7 -24.2 37.1 revenue will begin to be recognize from the opening of Extension Phase 1 of MRT PE 60.4 50.4 32.4 42.7 31.1 P/BV 5.3 5.0 5.0 4.8 4.4 Blue Line for 11 stations (Hua Lamphong Station - Lak Song Station) on 29 EV/EBITDA 27.8 27.0 27.0 23.7 20.8 DPS (Bt) 0.11 0.13 0.15 0.14 0.20 September 2019 (a trial run will initially start from 5 stations - Dragon Temple Dividend yield (%) 1.1% 1.3% 1.5% 1.4% 1.9% ROE (%) 8.7 10.0 15.6 11.3 14.3 Station - Tha Phra Station with Hua Lamphong as an interchange station). We Source: Company data, AWS Research still believe that the 2019 net profit estimate at Bt3.7bn is still possible. The 2Q19 net profit estimate that we have estimated previously will be the lowest point of Rating CGR 2018 Thai CAC 2019 and pose 6M19 net profit for 44% of the 2019 net profit forecast. The growth will jump by leads and bounds again in 2020 from the opening of Extension Phase BEM Certified 2 of MRT Blue Line (Tao Poon Station - Tha Phra Station) in March 2020. Therefore, we estimate the 2020 net profit at Bt5.1bn or up by 37% YoY Thailand Research Department Benjaphol Suthwanish Believe in negotiation ... rather than prosecution: From discussing with BEM License No. 018575 on the issue that the Attorney General ordered to review the draft concession for Tel: 02 680 5056 30 -year extension of the expressway in 3 projects, namely (1) Second Stage Expressway, Sector A + B + C (ending 2020) to extend to 2050 (2) Bang Pa-In - Pak Kret Expressway, Sector C + (ending 2026) to extend to 2599 and (3) Second Stage Expressway, Sector D (ending 2570) to extend to 2600, approved by the Expressway Board (EXAT) earlier (EXAT Board’s resolution on 20 December 2018) until there will be more clarity which we believe that such issue will still be a factor affecting a short-term investment. However, we still maintain the original view as we believe that EXAT will continue to hold negotiations to settle the dispute with BEM, but still weigh that there is a possibility that the draft concession for 30-year extension of expressway might have changed. For the worst case, if EXAT objects that draft concession, things that will happen are (1) BEM still holds the right to be first negotiator with EXAT to extend the existing concession to be expired in 2020 by 20 years (the conditions of the original contract allow to extend twice and 10 years each time. If the draft is canceled, EXAT will have little choice in finding a new operator instead of BEM as there is less than 1 year remaining, while BEM is ready as the original operator and BEM had previously submitted a contract extension under the terms of the original contract in 2015. 1 Company Update BANGKOK EXPRESSWAY AND METRO PCL (BEM) 23 July 2019 (2) EXAT will have to pay Bt4.3bn damage charges from the dispute over the Udon Ratthaya Expressway (NECL), which the Supreme Administrative Court has previously decided (3) the prosecution process will continue, especially in the case of disputes regarding toll adjustment which many cases are still in the arbitration process and the Central Administrative Court and (4) If the draft is canceled, BEM will not have to invest in the construction and renovation of the 2nd Stage Expressway to a Double Deck expressway from Prachachuen-Asok, a distance of 17 kilometers with total construction budget of Bt3.15 trillion (15-year concession agreement which BEM holds 40% of revenue share of total revenue) We see the difficulty in lowering the fare to Bt15 throughout the route: In the case that Mr. Saksiam Chidchop, Minister of Transport, has a policy to lower the fare for the whole public transportation system, especially the mass transit which is likely to be lowered down to Bt15 throughout the route, we have not yet found the direction of the government in implementing such policy. Therefore, it is difficult to assess the impact, but initially, we see such issue is difficult to implement as there are many details needed to be considered. This is because there is a concession contract with a private company that had specifically clarified share of returns, while determining fare of each route depends on several factors. For past practices, if there is a policy to lower fare rate, the state needs to compensate the private ownership of the concession which the government sector needs to a subsidize budget. In other ways, there may be a fare reduction in in some routes, including MRT Purple Line (BEM was contracted for operation and maintenance services only) and the Airport Rail Link route which is under the supervision of the State Railway of Thailand. Potential projects waiting to bid driven BEM in the long run: The company still has potential and high growth opportunity from the bidding of many other important projects, namely (1) 2 Motorway routes: Bang Pa-In-Korat and Bang Yai-Kanchanaburi (O&M work) which are expected to be announced by the end of 2019 (2) Bidding for the High Speed Rail Linked 3 Airports Project (BEM holds 10% stake) and (3) Bidding for MRT Orange Line and the Southern Purple Line which are expected to start bidding in 2020. There are all driven factors for BEM in a long run, although the sentiment of investment is pressured by the draft review of the concession extension which we still give the weight to the resolution of such issue to be ended by the negotiation 2 Company Update BANGKOK EXPRESSWAY AND METRO PCL (BEM) 23 July 2019 3 Company Update BANGKOK EXPRESSWAY AND METRO PCL (BEM) 23 July 2019 Income Statement (Btmn) Year to 31 Dec 2016 2017 2018 2019F 2020F Sales 13,104 15,153 15,614 16,019 18,918 Costs of Sales 7,828 9,206 9,774 8,973 10,478 Gross profit 5,276 5,947 5,841 7,047 8,439 SG&A 1,131 1,144 1,364 1,399 1,419 EBIT 4,145 4,803 4,477 5,647 7,020 Depre. & amort'n 3,423 3,545 3,867 4,163 4,213 Interest expense 1,446 1,611 1,857 1,773 1,511 Other income 98 240 477 240 284 Pre-tax profit (loss) 3,145 3,838 3,574 4,616 6,320 Corporate Tax 563 696 1,189 904 1,238 Norm. net profit 2,582 3,142 2,385 3,712 5,082 Extraordinary Items 31 0 2,496 0 0 Minority interest 7 19 19 24 25 Net profit 2,606 3,123 4,862 3,688 5,057 EBITDA 7,568 8,348 8,343 9,811 11,234 Normalized EPS (Bt) 0.17 0.20 0.15 0.24 0.33 Net EPS (Bt) 0.17 0.20 0.32 0.24 0.33 DPS (Bt) 0.11 0.13 0.15 0.14 0.20 Statement of Financial Position (Btmn) Year to 31 Dec 2016 2017 2018 2019F 2020F Current Assets 9,219 6,280 6,280 24,528 25,539 Non-current Assets 73,566 92,639 92,639 83,429 86,345 Total Assets 82,786 98,919 98,919 107,957 111,884 Current Liabilities 9,558 11,583 11,583 27,989 30,418 Non-current Liabilities 43,445 56,157 56,157 47,370 45,998 Total Liabilities 53,003 67,740 67,740 75,359 76,416 Paid-up Capital 15,285 15,285 15,285 15,285 15,285 Retained Earnings 5,817 5,817 5,817 5,817 5,817 Total Equity 29,783 31,179 31,179 32,598 35,467 Total Liabilities and Equity 82,786 98,919 98,919 107,957 111,884 BVPS (Bt) 1.95 2.04 2.04 2.13 2.32 Cash Flow Statement (Btmn) Year to 31 Dec 2016 2017 2018 2019F 2020F Net Profit 2,606 3,123 4,862 3,688 5,057 Depre./Amortization 3,423 3,545 3,867 4,163 4,213 Change in work's cap -3,613 -1,974 -1,974 -897 175 Other non-cash items 1,430 2,455 394 24 25 Operating Cash Flow 3,845 7,150 7,150 6,978 9,470 CAPEX -5,733 -8,176 -8,176 -5,000 -5,000 Investing Cashflow -11,663 -2,798 -2,798 4,992 -6,870 Dividend Payment -1,834 -1,834 -1,834 -2,293 -2,213 Net financing cash flows 4,112 -2,501 -2,501 6,269 -1,945 Fx gain (losses) on cash 0 0 0 0 0 Inc.