Despite our long-term bullish view on the sector, BTS and BEM’s share prices have fallen as investors priced-in the regulatory uncertainty. For BTS, there is uncertainty over the Green Line mass transit concession, while it is the toll road concession for BTS. The government has not set a deadline to disclose the results. However, between the two, we like BTS because it is cost-competitive and would see more feed-in traffic.

Overhang will continue to dictate share prices in mass transit segment

We remain bullish on the sector in anticipation of a cyclical upturn for the mass rail transit segment. However, there may be near-term hiccups in current projects for both BTS and BEM. BTS is negotiating with Krungthep Thanakrum (KT) to restructure the entire Green Line contract (core line and extension). The major terms and conditions for the extension have been finalized by the government agencies but the contract is subject to cabinet approval. BTS remains optimistic of the outcome and expects to make an announcement in 4Q19. Meanwhile, BEM has negotiated with EXAT to extend the existing toll road projects, and is awaiting cabinet approval. These projects have been the key earnings and cash flow drivers for those companies.

More mass transit lines up for bidding

Under the masterplan, mass rail transit will be the main mode of public transportation in urban areas, supplemented by buses and ferries, over the next five years. Under the latest M-Map, mass transit track length will surge 500% to 515km by 2029 from 110km now. The number of commuters with access to mass transit will increase accordingly, to 11.7m by 2029 from 2.4m in 2016. Number of trips is expected to soar from 1m per day now to 4.3m in 2019 and 7.8m by 2029. This implies ridership growth for the entire system would reach 18% p.a. CAGR during 2017-29, from 12% p.a. CAGR over 1999-2016. The government has not called for tenders for new lines so far this year, but the  timeline indicates the Orange Line would be open for tender late this year.

Top pick: BTS

We have a HOLD rating for BTS with a SOTP-based TP of Bt14. We prefer BTS for two reasons: (1) it is poised to benefit from the surge in commuter traffic over the next 10 years because total track length operated by the company would double; and (2) there is larger upside risk to earnings and TP if the Green Line contract is finalized in BTS’s favor.