BECL's
earnings are projected to rise 32% this year to Bt1.16bn and
71% next year to Bt1.98bn. Major catalysts are improving
traffic volumes, a 12.5% toll hike in the central system
starting Sep-03 and interest savings. As half of its
Bt35.5bn loans are linked to MLR, the company is expected to
save interest expenses of about Bt4mn per month following
this month's 0.25% reduction in bank lending rates.
BECL's shares are trading
just above two-month lows after the government proposed a
new toll fee structure and hinted at a merger between the
BECL and the loss-making ETA. Given the ETA's Bt111bn debt
and continuing losses, we believe the merger idea is a
non-starter and would be firmly rejected by BECL. Under the
terms of its concession, BECL does not have to comply with
the proposal to restructure toll fees if it will cause the
company to lose income.
BECL is currently trading on
a 2003 PER of 9.4x and a 43% discount to our NPV estimate of
Bt25.4/share. It will also pay a Bt1/share dividend for its
2002 operations, representing a 7% yield. The XD date is
April 3.
Table 1:
BECL's earnings forecasts
|
Year to
Dec |
2001 |
2002F |
2003F |
2004F |
2005F |
|
Sales (Btmn) |
5,945 |
6,352 |
6,646 |
7,855 |
8,096 |
|
Net profits (Bt) |
874 |
878 |
1,156 |
1,980 |
2,185 |
|
EPS (Bt) |
1.14 |
1.14 |
1.50 |
2.57 |
2.84 |
|
Growth (%) |
408% |
0% |
32% |
71% |
10% |
|
Cash/shr(Bt) |
3.4 |
3.7 |
3.8 |
5.0 |
5.3 |
|
PER (X) |
12.4 |
12.4 |
9.4 |
5.5 |
5.0 |
|
BPS (Bt) |
17.8 |
17.6 |
18.0 |
21.2 |
23.0 |
|
EV/EBITDA (x) |
9.2 |
8.3 |
8.4 |
6.5 |
5.4 |
|
Dividend yield (%) |
5% |
7% |
7% |
11% |
12% |
Merger
proposal with ETA is a non-starter
BECL should be able to raise
toll rates by Bt5/car for the central system in September
this year. Under its concession agreement, toll fees can be
adjusted every five years, taking into account Bangkok's
inflation rate. Tolls on the central route rose by Bt10 to
Bt40 in 1998 but are expected to rise Bt5/journey or 12.5%
to Bt45. Tolls for sector C, however, should double to Bt20
given that there has been no fee hike since 1993. Sector C
accounts for 10% of total revenues and has average daily
traffic of 120,000 cars a day. We are forecasting tolls for
the central system to rise from Bt21.5/car in 2002 to Bt22.9
in 2003 and Bt25 in 2004. This should increase BECL’s toll
revenues by more than Bt4mn a day.
The government recently
proposed a change in toll structures related to the distance
between entry and exit points and asked BECL to conduct a
feasibility study into this. The rationale behind the
government's proposal is to ease Bangkok traffic jams by
encouraging short-distance commuters to use the expressway.
BECL, however, does not have to comply with the proposal if
it will cause the company to lose toll income.
Another idea floated by some
government officials is for a merger between BECL the
Expressway and Rapid Transit Authority (ETA). Given the
ETA's Bt111bn debt and continuing losses, we believe this
idea is a non-starter and would be firmly rejected by BECL.
Tax break
from possible merger of NECL?
In 2Q02, the Revenue
Department rejected BECL's claim for a tax refund due to
consolidated losses from Sector C+1 on the grounds that the
route was operated by a separate company, BECL’s
99.9%-owned subsidiary, Northern Expressway Co (NECL). The
subsidiary, however, will be able to claim tax breaks after
the route turns profitable in the future. If BECL took over
sector C+1, it would be able to save annual costs of about
Bt95mn. However, we have not factored this into our
forecasts.
February
traffic growth helps offset changes in revenue-sharing terms
BECL's revenues in February
fell by 7% yoy to Bt513mn, in line with expectations. Daily
traffic volumes in the central system rose 2.8% yoy in
February to 740,600 vehicles. Average daily volumes in the
first two months topped 740,000 vehicles, surpassing our
forecast for FY03 of 700,000 vehicles. However, we expect a
slight decrease in traffic flows after toll fees rise by
Bt5/car in September this year. Revenues from the central
system fell 13% yoy to Bt442mn due to changes in
revenue-sharing terms last September.
Last month also witnessed
strong yoy growth in sector D and a sharp improvement in
sector C+1. Rising traffic from the central systems and
Eastern Seaboard motorway are boosting volumes in Sector D.
Monthly toll revenue rose 3.8% mom and 107% yoy to Bt40mn.
As a result, daily revenues of Bt1.29mn last month passed
the cash break-even level of Bt1mn.
Table 2:
Traffic per day and monthly revenue profiles in February
2003
|
|
Feb-03 |
Feb-02 |
Jan-03 |
|
Percent
change |
|
Central
system |
|
|
|
|
yoy |
mom |
|
Traffic/ day (,000) |
740.6 |
720.7 |
744.4 |
|
2.8% |
(0.5%) |
|
Monthly toll (Btmn) |
442 |
507 |
445 |
|
(12.8%) |
(0.6%) |
|
Sector
C+1 |
|
|
|
|
|
|
|
Traffic/ day (,000) |
49.0 |
32.2 |
38.4 |
|
52.4% |
27.7% |
|
Monthly toll (Btmn) |
31.0 |
26.0 |
30.8 |
|
19.1% |
0.7% |
|
Sector
D |
|
|
|
|
|
|
|
Traffic/ day (,000) |
57.4 |
25.9 |
55.4 |
|
121.8% |
3.5% |
|
Monthly toll (Btmn) |
40.0 |
19.3 |
38.5 |
|
107.3% |
3.8% |
|
Total
revenues |
513.1 |
552.2 |
514.1 |
|
(7.1%) |
(0.2%) |
Monthly tolls in Sector C+1
rose 9% yoy and 1% mom to Bt31mn after BECL offered a 20%
discount. Daily traffic volumes grew 52% yoy and 28% mom to
49,000 over the same period. We estimate cash and real
break-even levels for this sector at Bt1.6mn and Bt2.2mn per
day, against a 12-month adjusted collection of Bt0.93mn.
Funding costs
to decline after 0.25% cut in MLR
Next month BECL's cost of funds
will fall from 5.91% to 5.78% following a 0.25% reduction in
MLR by commercial banks this month. As half of its Bt35.5bn
loans are linked to MLR, the company is expected to save
interest expenses of about Bt4mn per month. Accordingly, we
have revised up our earnings forecast for 2003 and 2004 by 5%
and 3% respectively.
Table 3:
Earning revision
|
|
|
Original |
|
Revision |
|
Change |
|
|
|
2002 |
2003F |
2004F |
2003F |
2004F |
2003F |
2004F |
|
Revenues |
6,352 |
6,646 |
7,855 |
6,646 |
7,855 |
0% |
0% |
|
Debt |
35,834 |
33,930 |
31,086 |
34,001 |
31,221 |
|
|
|
Interest Expenses |
2,389 |
2,124 |
2,016 |
2,053 |
1,950 |
|
|
|
Net
profits |
878 |
1,100 |
1,919 |
1,156 |
1,980 |
5% |
3% |
The company retired only
Bt60mn of loans last month, raising 2M03 prepayments to
Bt336mn or 47% of the company’s minimum scheduled
repayment of Bt783mn for this year. We expect BECL to retire
about Bt2bn worth of debt this year. The company will slow
debt repayments during February to April ahead of its
dividend payout of Bt770mn (Bt1/share from 2002 earnings).
|
Income
statement |
|
(Btmn) |
2001 |
2002 |
2003F |
2004F |
2005F |
|
Sales |
5,945 |
6,352 |
6,646 |
7,855 |
8,096 |
|
COGs |
1,518 |
1,671 |
2,200 |
2,239 |
1,781 |
|
Gross
margins |
4,427 |
4,680 |
4,446 |
5,616 |
6,315 |
|
SG&A |
782 |
862 |
877 |
1,100 |
1,133 |
|
Operating
margins |
3,645 |
3,819 |
3,569 |
4,517 |
5,181 |
|
Interest expenses |
2,787 |
2,389 |
2,053 |
1,950 |
2,339 |
|
Other income |
16 |
17 |
25 |
74 |
70 |
|
Pretax profits |
874 |
1,447 |
1,541 |
2,641 |
2,913 |
|
Income taxes |
- |
346 |
385 |
660 |
728 |
|
Associate earnings |
- |
- |
- |
- |
- |
|
Minority interests |
- |
- |
- |
- |
- |
|
Extraordinary items |
- |
(223) |
- |
- |
- |
|
Net
income |
874 |
878 |
1,156 |
1,980 |
2,185 |
|
Balance
sheets |
|
(Btmn) |
2001 |
2002 |
2003F |
2004F |
2005F |
|
Cash equivalent |
637 |
557 |
443 |
742 |
385 |
|
Receivable |
- |
- |
- |
- |
- |
|
Inventories |
- |
- |
- |
- |
- |
|
Investment |
- |
684 |
1,134 |
1,134 |
1,134 |
|
Fixed Assets |
51,317 |
49,930 |
48,192 |
46,327 |
44,425 |
|
Total assets |
52,027 |
51,214 |
49,808 |
48,243 |
45,983 |
|
Credits |
15 |
15 |
21 |
22 |
17 |
|
ST-debts |
103 |
719 |
- |
- |
- |
|
LT-debts |
37,540 |
35,115 |
34,001 |
31,221 |
27,982 |
|
Other liability |
798 |
1,237 |
1,183 |
1,464 |
1,475 |
|
Equities |
13,827 |
14,128 |
14,602 |
15,536 |
16,508 |
|
Cash
flow statement |
|
(Btmn) |
2001 |
2002E |
2003E |
2004E |
2005E |
|
Net Profit |
874 |
878 |
1,156 |
1,980 |
2,185 |
|
Depre./Amort. |
1,563 |
1,714 |
1,738 |
1,866 |
1,902 |
|
Net Working Cap. |
(16) |
1 |
6 |
0 |
(4) |
|
Unrealized F/X |
- |
- |
- |
- |
- |
|
Cash
flow from operations |
2,635 |
3,061 |
2,802 |
3,949 |
4,058 |
|
|
|
|
|
|
|
|
CAPEX |
(92) |
(284) |
- |
- |
- |
|
Investment |
- |
- |
(450) |
- |
- |
|
Cash
flow from investing |
(288) |
(811) |
(203) |
- |
- |
|
|
|
|
|
|
|
|
Debt Movement |
(1,982) |
(1,808) |
(1,833) |
(2,780) |
(3,239) |
|
Capital Call |
- |
- |
- |
- |
- |
|
Dividend Paid |
(154) |
(578) |
770 |
786 |
1,164 |
|
Cash
flow from financing |
(2,137) |
(2,383) |
(2,603) |
(3,565) |
(4,402) |
|
|
|
|
|
|
|
|
Free
cash flow |
2,543 |
2,777 |
2,802 |
3,949 |
4,058 |
|
Financial
ratios |
|
|
2001 |
2002E |
2003E |
2004E |
2005E |
|
Gross margins |
74.5% |
73.7% |
66.9% |
71.5% |
78.0% |
|
Operating margins |
61.3% |
60.1% |
53.7% |
57.5% |
64.0% |
|
Net gearing (X) |
2.68 |
2.50 |
2.30 |
1.96 |
1.67 |
|
Interest coverage (X) |
1.3 |
1.6 |
1.8 |
2.4 |
2.2 |
|
Inventory Days |
- |
- |
- |
- |
- |
|
Collection Days |
- |
- |
- |
- |
- |
|
Payment Days |
4 |
3 |
4 |
4 |
4 |
|
