Tris keeps BTS on track with A rating

Tris keeps BTS on track with A rating

Tris Rating affirms the company rating for BTS Group Holdings Plc and the ratings on BTS's outstanding senior unsecured debentures at A.

Tris also assigns an A rating to BTS's proposed issue of up to 6 billion baht in senior unsecured debentures. Proceeds from the new debentures will be used to repay existing debt, finance its investments or will be reserved for working capital.

The ratings reflect BTS's strong business profile based on the high predictability of service income from mass transit train operation, stable dividend income received from its 33.33% investment in the BTS Rail Mass Transit Growth Infrastructure Fund, and its entrenched position in the media business.

However, BTS's financial profile will be weighed down by a surge in debt over the next four years as the company must fund several large investments in a number of large mass transit projects.

In the first quarter of fiscal year 2019, BTS's revenue (excluding revenues from installation and construction services and train procurement service) increased by 14% year-on-year to 1.63 billion baht, mainly because of the strong growth of the advertising business.

BTS's operating margin (operating income before depreciation and amortisation as a percentage of revenue) substantially dropped from 31.8% in fiscal year 2018 to 19.7% in the first quarter of fiscal year 2019, largely because of the increase in non-recurring sales and administrative expenses.

Meanwhile, BTS's debt-to-capitalisation ratio stood at 50% during 2018 to the first quarter of 2019.

The stable outlook reflects the expectation that the company will achieve steady growth in revenues and cash flow from operations. Total debt is expected to rise substantially because of the new mass transit projects undertaken through its subsidiaries.

However, net cash flow from existing businesses is also expected to rise substantially. As a result, the debt-to-earnings before interest, tax, depreciation, and amortisation ratio will remain acceptable.

Under Tris Rating's base-case scenario, BTS's revenues will gradually increase to around 11 billion baht in 2021.

In addition, during 2019-2021, Tris forecasts BTS will recognise revenue of around 80 billion baht from electrical and mechanical services, train procurement services, and revenue from the development of the Pink and Yellow lines.

Tris forecasts the operating margin is expected to stay around 30%, with the debt-to-capitalisation ratio dipping to around 40% in 2021.

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