BTS Group Holdings

BTS Group Holdings Plc (BTS)

2Q12/13 profit to grow twofold qoq from core business and extraordinary profit
With benefit from a new school semester, passenger volume in 2Q12/13
(ending in September 2012) would increase by 6%qoq, which would boost
revenue from the core business, mass transit (64% of total revenue), in
2Q12/13 (ending in September) to grow by 6%qoq. Meanwhile, revenue from
advertising business (29% of total revenue) is projected to thrive remarkably
by 13.7%qoq due to recognition of gradually increasing advertising revenue
from sales floor areas in TESCO after the company got the contract in March
2012 as well as benefit from the receiving of the right to operate a radio
advertising media in Big-C for the first quarter. At the same time, the
property business is anticipated to show flat growth. Consequently, total
revenue in this quarter is estimated to grow by 7.1%qoq, while gross margin
would stabilize qoq. However, there is an additional positive factor from
interest expense which would decrease 6.6%qoq as BTS has entirely repaid
the bonds of B2.5bn which was mature in August. Accordingly, norm profit in
this quarter is projected at B389m, or the growth of 20.2%qoq. Plus with
extraordinary profit of B250m from a sale of its subsidiary, Kamala Beach,
net profit in 2Q12/13 would equate to B639m or a twofold increase from
1Q12/13.

Profit from VGI sale boosts 3Q12/13, plus with new positive factor, BTS fare hike
BTS’s profit tends to continue growing in 3Q12/13 (ending in December
2012) as the mass transit business is projected to gain benefit from
increasing passenger volume after the opening of the extension line
Wongwian Yai-Phonimit since 5 December 2012 onward. Moreover, BTS will
also have additional income from its operation of the extension route as hired
by the BMA. Furthermore, a gradual use of 35 new bogies since November
2012 onward will increase advertising areas for the advertising business. In
addition, in 3Q12/13 BTS would have extraordinary profit of B1.6bn from
selling of shares of its subsidiary (advertising business), VGI Global Media,
and offering to the public. With the clearness about extraordinary profits from
the sale of the 2 subsidiaries, we revise up our net profit forecast in
2012/2013 from B1.8bn to B3.38bn or a raise of 116%, but keep the forecast
in 2013/2014 unchanged at B2.47bn. In addition, BTS is preparing to
announce a fare hike since the next fiscal year (the hike can be done with
only 1 month in advance notification to the BMA) as now the company is
collecting transit fare between B15-B40/trip but the current ceiling of the fare
is B18.8-B56.4, which means the highest hike the company could do is 30%
from the current level. However, we believe the possible hike would be 9%-
15%. Based on the previous round of fare hike in 2007, the average hike was
9.5%, but it was 14.9% calculated by using CPI of the Bangkok (2007’s fare
as a base). Preliminary, if the fare is raised within the range (9%-15%), net
profit of BTS will increase from the current level by 15%-26.4%, thus
boosting fair value by B0.60-B0.90/share. However, we are still waiting for
the clearness about the fare hike before revising our forecast.

Fair value including extraordinary profit is B6.70, to rise further on fare hike
Including the sale of 2 subsidiaries, BTS’s cash in hand increased immediately
by B3.66bn or a value added of B0.30/share, pushing our fair value to B6.70
(fully diluted from including of the number of shares that might increase from
converting debenture (convertible debenture holders can use the right at
price of B5.12/share) and convert of BTS-W2 (the strike price is
B4.375/share) totaling 1,989 million shares). Although the current share
price has 12.6% upside, it has still not included a benefit from possible BTS
fare hike which will boost profit and upside further. Reiterate BUY.