BEM stock shines in transportation sector

BEM primarily operates in the railway and expressway businesses.

Krungsri Securities estimates a target price of 11.50 baht for BEM and believes that the financial performance in the second quarter of 2023 will be favourable due to dividend income received from joint venture companies. BTS stock, on the other hand, may experience a decline due to factors such as the absence of stimulating factors.

In the first quarter of this year, the main transportation businesses of BEM and BTS generated a profit of 1.1 billion baht (+33% year-on-year and +2% quarter-to-quarter). The majority of the profit came from BEM, which saw a 123% year-on-year increase and a 24% quarter-to-quarter increase due to increased travel volume in both the expressway and mass transit segments. However, BTS's profit decreased significantly both year-on-year (-26%) and quarter-to-quarter (-25%) due to the performance of its subsidiaries, particularly VGI Plc. When considering the railway and mass transit businesses alone, BEM's profit increased by 6% year-on-year and 13% quarter-to-quarter, benefiting from profit sharing with BTS Rail Mass Transit Growth Infrastructure Fund (BTSGIF).

Comparing quarter-to-quarter trends, BEM's second quarter 2023 financial performance is expected to be better than that of BTS.

As for the outlook for the second quarter of 2023, while Krungsri Securities anticipates a quarter-to-quarter decline in the financial performance of both BEM and BTS, it also expects BEM to maintain a favourable trend, with quarter-to-quarter profit growth, as it will receive dividend income from joint venture companies (TTW Plc and CK Power Plc ).

Krungsri Securities recommends buying BEM (target price: 11.50 baht) and BTS (target price: 9.46 baht). However, due to the risks associated with regulatory criteria and the financial performance trends, Krungsri Securities still considers BEM to be safer than BTS, even if BEM fails to secure the contract for the Orange Line project, Conversely, BTS's financial performance is still affected by disputes with government agencies without a clear resolution in sight.

BEM is also looking at expanding into other fast-growing businesses with good returns, such as other infrastructure projects, commercial development or real estate development, both at home and abroad.