BTS Group Holdings
BUY Driven in short term by shareholders with VGI subscription right
BTS Group Holdings Plc (BTS)
Shareholders have subscription right of 367.2-442.8 BTS shares to 1 VGI share
BTS has fixed 4 September 2012 as a record date for shareholders to exercise the right to subscribe to shares of VGI Global Media (BTS’s subsidiary operating media and advertising business (29% of BTS’s revenue) at the IPO price (which has still not revealed). Book-closing date is fixed subsequently on 5 September. BTS’s shareholders will have the right to subscribe to VGI shares at a ratio of 367.22-442.80 BTS shares to 1 VGI shares. The number of BTS’s shares to be used in the VGI subscription comes from the current common shares of 9,207 million and possible common shares from a conversion of convertible bonds (at a price of B5.12 each) of around 9,702 million (totaling 1,894 million shares). If there is not a conversion of convertible bonds until the record date, the ratio for VGI subscription will be 367.22 BTS shares to 1 VGI share, but if there is a conversion, the ratio will be 442.80 BTS shares to 1 VGI share.
Share price driven in short term. Prepare to revise up profit forecast after meeting today
As BTS’s shareholders will receive the right to buy VGI shares if they hold the stocks until 4 September (record date), BTS’s share price might increase until then as VGI is a growth stock which is in high demand from its notable profit growth. Net profit of VGI in the past 3 years has grown average by 67% yoy. Furthermore, VGI still has a potential to generate additional profit in the future, preliminarily from the following factors. 1) Advertising areas in BTS will increase from new trains and future BTS stations. Moreover, the company also has a plan to expand advertising areas by installing platform screen doors at 9 BTS stations. 2) There are abundant advertising areas in more than 1,000 department stores such as TESCO, BigC, and Watsons the company can develop. Accordingly, we estimate these contributions will help drive BTS’s net profit from advertising business significantly in the long run (still not included in our forecast). Moreover, the company will also have extraordinary profit from BTSC (BTS holds 100% stake), VGI’s shareholder
with 100% stake, which will sell some of its shares together with IPO shares. As a result, we project that both BTSC and BTS might be able to recognize extraordinary profit from the sale depending on the offering price. In addition, norm profit of BTS in 2012 tends to outgrow our forecast due to the too-conservative assumption for passenger volume we used. Consequently,
we are likely to revise up our profit forecast and fair value after the meeting with VGI regarding its business plan today.
New fair value estimated at B6.40-6.80. Buy
The current share price of BTS has been pressured by possible increase in the share number after the conversion of convertible bonds (convertible bond holders can exercise their right at a price of B5.12/share) and BTS-W2 (exercise price is B4.375/share, to be exercised since November 2012)
totaling by 2,698 million shares at end-2012/2013 (or a dilution effect of 29%). However, as norm profit in 2012 tends to beat our projection and the company might have extraordinary profit as mentioned above, they would entirely compensate the dilution effect. Moreover, the current share price might decrease due to the above factors, so this is an opportunity to accumulate the stock for mid- and long-term investment. We reiterate to buy. Fair value after the forecast revision is derived at B6.40-6.80/share (fully diluted).
