BTS Group Holdings

BTS Group Holdings Plc (BTS)

Investment thesis: The key messages at the analyst meeting reaffirmed our optimistic view with regard to BTS’s mass transit and media businesses. Concerns about the legal action against the new O&M contract may generate negative sentiment toward the stock, but we think those concerns are already priced in. Sustained strong ridership growth together with media business expansion will catalyze the share price going forward. 
Scope for upside to mass transit: The mass transit operation remains the key earnings growth driver for BTS. Ridership numbers posted impressive growth of 17.7% in 1Q12/13 (April-June), well above-trend of the firm’s stated FY2012/13 target range of 12-15%. Furthermore, mass transit business GM fattened to 50.1% in 1Q12/13 from 44.1% in 1Q11/12. The ridership numbers and GM expansion should sustain an uptrend through 2Q12/13, driven by high season and rising economies-of-scale.
Historical data suggest that second-quarter ridership normally increases by 10% QoQ on average. As most mass transit business operating costs are fixed, ridership growth translates directly into GM expansion. 
Media business—a value enhancer: Media revenue grew 37% both YoY and QoQ in 1Q12/13, driven by non-BTS billings from new contracts signed with modern trade clients. The media unit will have more advertising space available for sale when BTS’s 35 new carriages go into service in Nov 2012. As such, the FY2012/13 media revenue growth target of 40% YoY looks comfortably achievable.
Moreover, the GM of the media unit has expanded—the GM of non-BTS billings rose to 31.8% in 1Q12/13 from 24.4% in 1Q11/12 and 12.2% in 4Q11/12; the GM of BTS-related billings increased to 87.4% in 1Q12/13 from 86.6% in 1Q11/12 and 85% in 4Q11/12. GM should be sustained high in 2Q12/13, as the second-quarter is also high season for the media unit.
Property unit improvements: Condo presales continue—as of end-June, bookings at Abstracts Sukhumvit 66/1 rose to 67% from 66% at end-March and at Abstracts Phahonyothin to 59% from 54% at end-March. The new Eastin Grand Hotel, which had a soft opening in May, made an operating profit (before depreciation expenses) in July with an occupancy rate of 80% (of available rooms).