BTS Group Holdings

BTS Group Holdings Plc (BTS)

Above expectations: BTS posted a 1Q12/13 (April-June) net profit of B309m, up 127% YoY but down 2% QoQ. Stripping out an FX loss of Bt14m, core earnings would be Bt324m, up by 201% YoY and 9% QoQ. The result was 5% above our estimate and the consensus, due to higher-than-expected other income and lower SG&A expenses than modeled.
Results highlights: The core earnings growth was driven by: 1) improvements across all key businesses and 2) lower SG&A expenses. Revenue from the mass transit business rose by 34% YoY (but declined 5% QoQ) to Bt1,394m, led by strong ridership growth of 18% YoY (but was down 3% QoQ, due to low season) to 46m Pax. Media income expanded by 36% YoY and 37% QoQ to Bt637m, due to aggressive penetration into modern trade and greater revenue from BTS-related media.
Property business revenue fell by 17% YoY and 26% QoQ to Bt155m—fewer units were transferred at Abstracts Sukhumvit 66/1 Condo (10 units against 18 in 1Q11/12 and 15 in 4Q11/12), while the National Housing Association project was completed. However, the opening of the Eastin Grand Hotel supported property revenue in 1Q12/13. Overall operating EBITDA margin expanded to 49.6% in 1Q12/13 from 47.1% in 1Q11/12, but softened from 50.6% the previous quarter. The SG&A/sales ratio declined to 16% from 19.9% in 1Q11/12 and 17.7% in 4Q11/12.
Outlook: BTS should sustain YoY and QoQ earnings growth momentum through 2Q12/13, driven by strong ridership numbers and gradual improving media and property operations. The historical data show that the firm’s second-quarter ridership numbers normally increase by 10% QoQ on average.
What’s changed? 1Q12/13 net profit comprises 25% of our FY12/13 net earnings forecast of Bt1,240m which we maintain unchanged. 
Recommendation: We think concerns about the legal action against the new O&M contract are already priced in. Sustained strong ridership growth together with media business expansion will catalyze the share price going forward. BTS’s valuation is undemanding—an end-March PBV of only 1.3x, deeply discounted to BMCL’s 8.3x and the regional mean of 2.3x.