KGI Securities has given an “Outperform” rating on Bangkok Expressway and Metro Public Company Limited (BEM) with a target price at ฿11.70/share, expecting 3Q20 core profit to skyrocket 443% on a strong recover in traffic volume.
KGI expected BEM to report a 3Q20 core profit of Bt827mn (-9.9% YoY, +443.2% QoQ). The strong recovery QoQ would be due to increasing toll traffic volume and ridership after the easing of lockdown measures since June 2020 (full MRT capacity since early September 2020). Average daily toll traffic during the quarter was 1.13mn trips/day (+41.2% QoQ) and MRT ridership was 0.283mn trips/day (+113.0% QoQ).
Gross margin is expected to increase QoQ from 26.8% in 2Q20 to 43.8%. If 3Q20 core earnings are in line with the forecast, 9M20F core earnings would account for 70.6% of KGI’s full-year forecast. The security company expected insignificant earnings downside to the forecast.
KGI reiterated a positive view on the upcoming MRT Orange Line West bidding despite overhang from the ongoing court case (changing TOR conditions after selling Request for Proposal documents). KGI expected the Administrative Court to make a ruling before the bid submission deadline (November 9, 2020) and not provide a temporary injunction for BTS Group Holdings (BTS).
BEM would be the first beneficiary from commercial operation of MRT Orange Line East (expected to begin operations in 2024) no matter who wins the bidding as there is a connection point to MRT Blue Line at Thailand Cultural Center station (KGI already included an increase in ridership in our DCF valuation).
In this regard, KGI maintained a rating of Outperform with a 2021 target price of Bt11.70 based on SOTP. KGI expected 4Q20 toll traffic volume and ridership to gradually recover QoQ. Good news is that the number of ridership is 412K trips/day on October 2, 2020, which is at the breakeven range (400-450k trips/day). BEMs 4Q20 core earnings are likely to drop QoQ due to absence of dividend income from Thai Tap Water (TTW), while double deck expressway and MRT Purple Line South would be medium to long-term catalysts.
Nevertheless, lower than expected traffic volume and ridership and overhang on MRT Orange Line West bidding could be the risk to limit BEM’s upside.