Key Rating Drivers
Leading Mass Transit Operator: BTSC has a strong business profile, reflecting its position as Thailand's leading mass transit operator. The company operates the BTS Skytrain network, which covers key commercial and strategic locations in Bangkok including Sukhumvit, Silom and Sathon, and handled around 70% of ridership in Bangkok's rail mass transit system in 2015. The existing mass-transit operations generate stable cash flows and are of low risk.
Solid Media Operations: The company's 51%-owned media subsidiary, VGI Global Media Public Company Limited (VGI), generates substantial cash flows and provides solid dividends to BTSC. VGI's media business related to advertising space on the Skytrain network and elsewhere will continue to generate strong earnings and cash flows in the medium term. The media business' prospects are supported by the increasing ridership and expanding mass transit network in Bangkok. VGI's unique operations allow the company to offer cross-platform advertising over mass transit, office buildings, billboards, street furniture and airports. The Skytrain-related media operations are generally stable, which help to mitigate the weak near-term outlook for the overall media industry of Thailand.
Steady Cash Generation: BTSC's mass transit (excluding new mass transit lines) and media businesses are highly cash flow generative and their capex requirements are low. Strong cash flow from operations from existing businesses should support an increase in investments for new mass transit lines in the medium term. Fitch expects BTSC to generate FFO of THB1.7bn-2.0bn a year over the next three years, including dividends from VGI.
Increasing Capex; Still-Low Leverage: We expect the company to generate negative FCF over the medium term because of increasing capex to add new mass transit lines. However, Fitch expects BTSC to maintain its FFO-adjusted net leverage below 1.0x during this investment phase (April-December 2015: net cash position).
Ratings Constrained by Parent: BTSC's strong operating and financial profile is appropriate for a standalone rating of 'AA-(tha)'. However, its parent, BTS Group Holdings Public Company Limited (BTS Group), has a weaker credit profile and Fitch rates the parent at 'A(tha)'. Given the strong operating and strategic linkages between the parent and subsidiary, BTSC's ratings are constrained by that of BTS Group as per Fitch's Parent and Subsidiary Linkage methodology. The strong linkages are evident in the common management and significant influence BTS Group has on BTSC's operational and financial decisions.
KEY ASSUMPTIONS
Fitch's key assumptions within our rating case for the issuer include:
- Revenue to drop in the financial year ended 31 March 2016 (FY16) after VGI terminated all contracts for advertising space with modern trade retailers; revenue to recover from FY17
- EBITDAR margin to improve to about 50% in FY16 given the lack of revenue from the low-margin modern trade media business; EBITDAR margin to drop to 40%-45% in FY17 partly due to consolidation of Master Ad Public Company Limited, which has lower margin
- The mass transit business to be granted operation and maintenance contracts for green line extensions
- THB5.8bn of capex over FY16-FY18, mainly in new mass transit lines
- High dividend payment for FY16 and FY17
Rating Sensitivities
Positive: Future developments that may, individually or collectively, lead to positive rating action include:
- positive rating action on BTS Group
Negative: Future developments that may, individually or collectively, lead to negative rating action include:
- negative rating action on BTS Group