Bangkok Expressway

Q4 2012 profit missed estimates; a better quarter ahead

Bangkok Expressway Plc (BECL)

Below estimates

BECL posted a 4Q12 net profit of Bt319m, up 88% YoY but down 32% QoQ. Stripping out gains on investments of Bt1m and on sales of fixed assets of Bt2m, core earnings would be Bt316m, up 77% YoY but down 30% QoQ. The result was somewhat below our estimate and the consensus, due to higher SG&A and interest expenses than modeled.

Results highlights

The drivers of the YoY core profit growth were: 1) greater traffic numbers(average daily traffic volume [including NECL] rose 9% YoY [2% QoQ] to 1,102,285 trips in 4Q12), 2) profit-sharing from its investment in CK Power (a turnaround from loss-sharing in 4Q11), and 3) a lower effective tax rate (to 21.4percent from 26% in 4Q11). The key factors behind the QoQ earnings contraction were: 1) an absence of dividend income (in 3Q12 TTW paid a Bt81m dividend to BECL [9.24percent stake]; none paid in 4Q12) and 2) the SG&A/sales ratio increased to 23.8percent from 19.7% in 3Q12.

Outlook

BECL's 1Q13 core earnings are expected to expand both YoY and QoQ. Even though the historical data show that its consolidated first-quarter traffic volume is normally flattish QoQ (a mean 1% increase), we expect the traffic numbers to post YoY growth for the quarter. Traffic numbers in January 2013 rose by 3% YoY and 1% MoM. Note that the historical pattern indicates that traffic numbers during the first three months of the year tend to rise MoM. In addition, the recognition of equity income from Thai Tap Water (TTW) in 1Q13 (starting February 7, 2013) will augment QoQ profit growth.

What's changed?

We have revised down our FY13 net profit forecast by 5% to Bt2,224m to reflect a higher interest expense assumption. But despite our projection cut, we have raised our YE13 SOTP target price to Bt45 (from Bt39) to factor in our recent target price upgrade for TTW and a lower WACC of 8.2% (from 10.6%, due to a new house view on COE).

Recommendation

The market has largely priced in expectations of strong earnings growth in 1Q13 to be brought about by strong traffic numbers and equity income from TTW. We have, therefore, tactically adopted a neutral view toward the stock. But the upcoming listing of CK Power Plc and a potential increase in toll fees in Sept 2013 should act as share price catalysts later in the year. We like BECL's long-term earnings growth story. Valuation-wise, it currently trades at a FY13 PEG of 0.7x, close to the Thai Transport sector average of 0.6x.