Land Transportation – What to expect from fare reduction policy?

Current status of legal framework. Cabinet approved a common rail ticketing plan that caps fares at Bt17-45 per trip starting 1 Jan 2027. Supported by an annual government subsidy of about Bt5bn, this applies only to Thai citizens using a verified EMV card. The laws for the Bt17-45 common ticket are on track. Currently, 13 of the 20 ticketing rules are complete, and based on the government timeline, the remaining seven are expected to be completed by Nov 2026. Meanwhile, operators are still discussing how to share revenue from the expected growth in ridership.

Expect 3.5% additional ridership growth. Passengers who use a single line already pay within the Bt17-45 range, so their fares will not change. The savings go to passengers who change lines, as they will no longer pay a separate entry fee on each line, and to BTS Green extension riders whose trips cost more than Bt45 today. Because passengers who change lines tap in on every line they use, we estimated these trips account for ~66% of daily entries, and their fares fall by ~27% on average. During the free travel week in Jan 2025, total ridership increased by 40%, but we assumed this time the impact would be half that amount as the free week was short, heavily promoted, coincided with severe PM2.5 pollution and drew leisure trips. Combining these factors, we estimate 3.5% additional growth in system ridership, driven by growth of 4.0% for the core Green line, 3.3% for the MRT (Blue line), and 5% for both the Pink and Yellow lines.

Earnings upside could be 1.3-2.8% for the base case. Our base case is on the conservative side, assuming a 3.5% increase in ridership, with the government taking 50% of the upside. Under these assumptions, we project a 1.3% upside to BEM’s 2027F earnings and 2.8% to BTSGIF’s, while BTS’s net loss would narrow by 8.5%. In a bull case, assuming 7% additional ridership and no revenue sharing, earnings could rise by 5.3% for BEM and 11.3% for BTSGIF, and BTS’s loss would narrow by about a third. However, we have excluded this from our current forecasts pending further clarity on the revenue-sharing structure for the additional ridership.

Clarity on revenue sharing would be sector catalyst. We view this policy as positive for the sector. We believe the market has not yet factored this potential upside into share prices, as reflected in the sector's YTD underperformance compared to the SET. Clarity on the revenue-sharing structure would increase investor confidence in the policy's implementation, acting as a major catalyst for the sector. For now, we maintain BEM as our top pick with a mid-2027F SoTP-based TP of Bt8.2 due to its decent earnings growth in 2027F where we believe market is still underestimate this. We have a NEUTRAL rating on BTS and BTSGIF.

Risks and concerns. Key concern for the sector is traffic recovery. Key ESG risk is travel safety. A perception of lack of safety would reduce traffic.