High Conviction: BEM – Still a room for further rally

We maintain our tactical recommendation of OUTPERFORM with an SoTP-based TP Bt9.5, excluding Bt1.5/sh upside from the West Orange Line project. Although share price has risen 5.4% since we upgraded last month (outperforming the SET by 7.7%), we believe there is room for share price to rise further, driven by strong 2Q-3Q23F earnings. Key risk would be political unrest which could potentially hit expressway traffic and MRT ridership.

Catalysts.

• Expressway traffic continued to improve MoM and YoY in June, averaging 1.1mn trips/day, up 2% MoM and 5% YoY, backed by the full opening of all educational institutions for a new term. 6M23 traffic averaged 1.1mn trips/day, up 12.1% YoY.
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• MRT (Blue Line) ridership growth also accelerated at 10% MoM and 35% YoY to 381k trips/day in June, driven by the trial run of the Yellow Line (Lat Phrao – Samrong), which connects with the MRT Blue Line at the Lat Phrao station. We expect July numbers to be stronger MoM and YoY as the Yellow Line became fully operational on June 19. The average ridership for 6M23 was 381.2k trips/day, a leap of 75% YoY.
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• We expect to see strong 2Q23 earnings of Bt890mn, up 18.9% QoQ and 40.4% YoY. Expressway revenue (55% of total revenue) is expected at Bt2.1bn, slipping 7.1% QoQ but growing 8.9% YoY. The QoQ drop is due to seasonality (school and other holidays) while the YoY growth is off last year’s low base. In 2Q23, expressway traffic slid 7% QoQ but grew 7.1% YoY to 92.4mn trips. Revenue from the rail business (39% of total revenue) is expected to fall 4.3% QoQ but surge 34.8% YoY to Bt1.5bn. The 2Q23 average ridership was 32mn trips, down 6.7% QoQ, but up 52.4% YoY. Revenue from the commercial business (7% of total revenue) was Bt265mn, increasing 3.9% QoQ and 28.3% YoY. In the quarter, BEM is expected to book dividend income of Bt337mn from its investment in TTW and CKP.
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• Based on our estimates, 1H23F profit will account for 42% of our full-year forecast. We expect stronger earnings both QoQ and YoY in 3Q23F. It will release results on Aug 10.

Action & recommendation. Share price has risen 5.4% since we upgraded on June 19, outperforming the SET by 7.7%. We see room for a further rise in share price in view of the strong earnings expected in 2Q23F, followed by QoQ and YoY growth in 3Q23F, undergirded by heavier expressway traffic and MRT ridership. A near-term catalyst would be greater MRT Blue Line ridership in 3Q23, fed in by the full operation of the Yellow Line. We maintain our tactical recommendation of OUTPERFORM with an SoTP-based TP of Bt9.5, which does not factor in Bt1.5/sh. upside from the West Orange Line project.

Key risks Slower-than-expected recovery in expressway traffic and MRT ridership from political unrest.