BTS Group Holdings

BTS Group Holdings Plc (BTS)
Investment thesis: We think that sustained strong ridership growth together with media business expansion will catalyze the share price performance. BTS’s impressive core earnings CAGR of 36% for FY12-14 should eventually prompt a valuation re-rating. Moreover, the firm’s profit profile is resilient to a weakening global economy. The stock is undemanding—an end-March PBV of only 1.2x, deeply discounted to BMCL’s 8.8x and the regional mean of 2.4x.
Mass transit & media the growth drivers in FY12/13: Ridership is conservatively forecast to grow by 12-15% YoY in 2012/13, driven by a full operational year for the Onnut-Bearing extension, increased demand for mass transit and the opening of the Wongwian Yai-Bang Wa line late this year (following 21% YoY growth in 2011/12). In addition, a fare price increase is expected, effective early 2013. Moreover, media revenue is forecast to expand by 40% YoY in 2012/13, comparable to the 2011/12 rate, driven by a full year of business from Big C and growth in modern trade in Thailand. Property business presales regained momentum in March after slowing for a few months, due to flooding.
Opening of new hotel will boost L-T earnings: BTS’s new four-star hotel, @Surasak Station, will open in June 2012, as planned. The occupancy rate is forecast at 60% during the first two years. The hotel is expected to break even in its third operational year with an occupancy rate of 70-75%. We think @Surasak Station will be a long-term earnings booster.
Long-term growth drivers lining up: Ridership should continue to grow going forward, driven by the govt-led rail mass transit expansion in Bangkok and suburban areas, which will feed passengers to BTS’s system. Moreover, train capacity expansion (up 36% by YE13) will definitely increase the mass transit advertising area, which will boost the media unit (the mass transit advertising area is now almost fully utilized). Future expansion of modern trade nationwide will boost the scope for media earnings growth.
Hidden value from unutilized land plots: We think there is hidden value in unused BTS land plots in good locations (Soi Nana, Phyathai and Mo Chit). The firm may sell the plots if it is offered good prices. Some land plots are currently under negotiation. With regard to the tender for a commercial complex @Mo Chit station, we understand that BTS isn’t keen to bid—it is focused on existing projects and doesn’t want to be distracted by non-core ventures with no obvious scope for synergy-building with its current businesses.