Tris Rating rates Bangkok Mass Transit System PLC (BTSC) and its senior unsecured debentures an A, reflecting BTSC's strong business profile as one of the two mass transit system operators in Thailand, the steady growth and predictability of its cash flows from train operations, and its entrenched position in the media businesses.
BTSC is the core business and key revenue and profit contributor of BTS Group Holdings PLC (BTS). The credit profiles of BTSC and BTS are closely linked. BTS is rated A with a stable outlook by Tris Rating.
These strengths are partially offset by BTSC's high financial leverage, the ratings agency said.
Tris Rating expects BTSC's revenue and cash flow to improve as new transit lines become operational. Revenue and cash flow from operating and maintenance (O&M) services for the Southern Green Line and Northern Green Line will rise substantially after they start to operate in 2018 and 2020, respectively. The O&M services, apart from generating a stable stream of revenue, provide a healthy gross profit margin.
Tris Rating also projects steady improvement in revenue and earnings before interest, tax, depreciation and amortisation (ebitda) from the media segment, operated by BTSC's subsidiary, VGI Global Media Plc.
For the first nine months of fiscal 2018, revenue from the media segment comprised 55% of BTSC's total service income, excluding revenue from installation and construction service and train procurement service.
VGI has a strong competitive advantage as the sole provider of advertising media inside trains and in commercial spaces at BTS stations. The competitive advantage pushed revenue higher despite a slowdown in the advertising industry in 2016 and 2017.
For example, in the first nine months of fiscal 2018, media sales on the BTS system rose by 25% year-on-year, a stark contrast to a 6% year-on-year drop in total advertising expenditure across the industry.
In the future, expansion of the mass transit network will boost revenue in the media segment further. There is a high probability that VGI will receive the rights to manage the advertising space and commercial areas in the new stations of Green Line extensions.
Moreover, VGI is expanding into other out-of-home media through acquisitions. These will enlarge the revenue base and create synergies in terms of cross-selling and pooling consumer data.
BTSC's total debt surged from 1.83 billion baht in fiscal 2016 to 24 billion baht in the first nine months of fiscal 2018. Total debt rose because BTSC issued debentures to secure the funds needed to procure trains and to install the electrical and mechanical (E&M) work.
The E&M contracts require that BTSC "prefund" the E&M costs for the rail expansion projects. BTSC will then be reimbursed by Krungthep Thanakom (KT), a wholly owned subsidiary of the Bangkok Metropolitan Administration (BMA), for all E&M costs, including accrued interest, in fiscal 2021. KT has the option to extend the payment for another two years.
BTSC is expected to place a down payment on the newly incurred debt once it receives the payments due from KT. As a result, Tris Rating projects the debt-to-ebitda ratio of BTSC will peak at 5.6 times in fiscal 2020 before declining to 2.9 times in fiscal 2022.
Tris Rating holds the view that the financial risk arising from the sharp increase in total debt will be mitigated by the high certainty of payments due from KT. BMA is rated AA+ with a stable outlook by Tris Rating.
