Originally published in the Bangkok Post 14th September
BTS Group is a leading provider of passenger services in Thailand, focusing on rail mass transit in Bangkok. Among the 50 largest companies on the SET by market capitalisation, it is also the largest out-of-home media company in Thailand and is engaged in property development along mass-transit routes. Daniel Ross, financial director and head of investor relations of BTS Group Holdings Plc, discusses the company’s strategy and outlook.
What is BTS’s business model?
We have four business areas within the group: mass transit, media, property and services, with each having its own distinct business model. Our mission as a mass-transit company is to provide the community we serve with a comprehensive range of city solutions that significantly contribute to an improved way of life. Our aim as a public company is to deliver accretion of shareholder value through earnings growth and improvement in operational effectiveness _ specifically, by delivering long-term shareholder returns that outperform returns from investment alternatives with a similar risk profile.
Please explain the mass-transit concession and operations.
The original network comprises 23 stations and 23.5 kilometres in the central business district (CBD). We have a 30-year concession for the original network until December 2029. The agreement gives BTS the exclusive right to operate and retain all revenues from the core network of the BTS system, including fares and revenues from advertising and commercial areas. We are also hired to operate and maintain the Green Line extensions under the purview of the BMA.
How is BTS’s ridership growth? Are there plans for further investment in extra carriages or trains?
Ridership grew by 21% in the 2011-12 financial year and we expect a further 12-15% growth in 2012-13. Ridership growth is driven by many factors but the most significant is network expansion, which gives more of the population easier access to the network. Other contributing factors include property development along the BTS, organic growth from population growth and urbanisation, and also the increasing cost of fuel and traffic congestion on the roads.
We are committed to a 35% increase in carriages (or 55 carriages) over the next 18 months at an investment cost of 3.5 billion baht. Carriages typically take 2.5 to three years between order and delivery. The first carriages have been delivered to Laem Chabang port and following final assembly and testing they should be in service by October or November this year.
The media company within BTS has been performing well. Why is this?
VGI Global Media is a beneficiary of both rising passenger numbers as well as increasing consumer spending through modern trade retailers. VGI started with mass-transit media and expanded into the in-store segment with partners such as Big C, Tesco Lotus, Carrefour and Watsons. All the digital and static advertisements in carriages and on our platforms are managed by VGI. Outside of the BTS, we are now beginning to manage the majority of digital and static advertisements for our modern trade partners. So when agencies look to allocate budgets we are able to offer unique and targeted access to a broad range of customer types throughout Thailand.
Both the BTS and non-BTS media businesses are performing well with revenue growth of 43% in 2011-12 and we forecast 40% growth in 2012-13. In the quarter ending June 30, 2012, non-BTS revenues exceeded BTS revenues for the first time. Our modern trade business continues to exhibit strong growth and going forward we expect that the growth will switch back to the BTS-related media with the additional carriages (and thus more advertising space) as well as increased ridership.
BTS is planning to list VGI later this year. What does VGI plan to do with the additional funds raised?
VGI has already filed its IPO application to the SEC and we expect the first day of trade in mid-October. Funding independence, operational practicalities and new investments are the key rationales for listing VGI. From an operational viewpoint, our stakeholders such as modern trade partners take a higher level of comfort when dealing with a listed company as a result of greater disclosure and transparency. Also part of the funds raised will be used to invest in platform screen doors which will both improve the safety of crowded BTS stations as well as integrate additional LCD screens into the platform doors.
How is BTS’s property arm, Abstracts performing? Are there plans to develop further projects?
Sales of the Abstracts condominiums have improved recently with 72% presold at Abstract Sukhumvit 66/1 and 62% at Phahonyothin Park. We can afford to be cautious on our approach to the property business. We have significant value in our real estate portfolio but will take a measured approach to any divestment, joint venture or future development of our property assets. Right now, our resources are best focused on our mass-transit and media businesses which are larger and more profitable.
What is the impact of government infrastructure plans on your business?
The government is committed to improving and speeding up the development of Bangkok’s mass-transit system. In Bangkok fewer than 6% of daily commuters use rail mass transit compared to 40% in Singapore and 44% in Hong Kong. The government’s current plans to increase the rail network to 495 km by 2029 will help provide a more convenient and environmentally friendly alternative to road-based transport. BTS Group is willing and able to participate in operating these extension lines.
What are the biggest risks facing your business today?
Our main challenge is to ensure a safe and reliable service for commuters within the current high-growth environment. Since operations began we have maintained a level of operational excellence and service reliability in excess of the most stringent global standards and we will strive to continue this as passenger levels increase.
Where do you see BTS in five years from now?
As the developer of Bangkok’s inaugural mass-transit route and Thailand’s largest out-of-home media company, BTS is an innovative company. Moving forward, though, we will focus on our core strengths and expertise and so I envisage that BTS will remain Bangkok’s leading mass-transit solution provider and Thailand’s leading out-of-home media company.
In five years’ time I believe we’ll also have a consistent track record of generating superior risk-adjusted returns for our shareholders.