BTS Group Holdings

BTS Group Holdings (BTS)
Tremendous cash from Infrastructure Fund to launch into new extension project
Yesterday, 2 issues had been announced by the executive as follows. 1) 2Q12/13
earnings result (ended in September 2012) has brought about B691m of net profit
which is more than our projection by B50m. This is due to the extraordinary profit
from a sale of its subsidiary (Kamala Beach) which has exceeded our projection.
For norm profit, it stands at B394m as projected, rising by 22% QoQ along with
increased revenue base of mass transit and advertising businesses. 2) The
establishment of Infrastructure Fund (IFF) worth between B50bn to B60bn; future
net fare revenue (after deduction of relevant operating costs and maintenance) of
BTSC (BTS holds 97.46% stake) will be sold to the fund, as the contract of
concession that still lasts for more 17 years (ending on 2029). Afterward, this will
be subject to investors around January - March 2013, as BTS will take 1/3 of the
investment which would take B16-18bn of cash. In the future, the company is
projected to obtain the return in a form of dividend yield and income from
operating BTSC’s existing green line, considered 2% of net revenue that would be
given to the fund. In terms of the remaining cash of approx B35-40bn, we project
that BTS would use it to invest in green line extension (Mo Chit - Saphan Mai, and
Bearing - Samut Prakan), pink pine (Khae Rai - Min Buri), and light rail transit line
(Bang Na - Suvarnabhumi Airport) which are projected to be in auction next year.

Forecast revised up to reflect conservativeness. Short-term profit still stands close to previous level
In order to be in line with the sale of future skytrain business to IFF projected to
be worth of B55bn, we revise up our forecast by including extraordinary profit that
BTS would obtain from the mentioned issue at around B7.3bn (recognizing in
4Q12/13). For the business construction after the sale since 2013/14 (ending on
March 2014), we estimate that BTS would transfer the net fare revenue to IFF and
recognize revenue through dividend from holding investment and the revenue from
operating the mentioned line instead. In terms of the remaining cash of approx
B35-40bn, there’s still no clearness for the auction plan, so we conservatively
make an assumption that BTS would invest in quite-safe assets under the return of
around 3% per year during 17 years ahead. Furthermore, we have revised our
forecast to reflect other 2 items as follows. 1) We revise up our profit forecast to
reflect net profit of subsidiary VGI that is better than projected, which was already
revised up earlier. 2) We revise up extraordinary profit from a sale of subsidiary
Kampoo Property Co., Ltd (recognizing in 3Q12/13) at B650m. Under the new
forecast, BTS’s 2012/13 net profit would increase by B8.2bn to the record high at
B11.4bn. For 2013/14 net profit, it is projected not to be obviously affected by the
company 33.33% stake of the mentioned fund since there is still interest from
investment to help compensate, so net profit would be close to the previous
projection at B2.5bn. Nevertheless, if there’s no investment in a new project in a
long run, the profit would be suppressed from our forecast by 34%.

New fair value, under conservative method, at B7.50. Reiterate “BUY”
Under our conservative assumption (the plan of investment in new extension line
not included), fully-diluted fair value, using sum of the part, stands at B7.5/share.
Fair values, using DCF, of mass transit, advertising businesses stand at B2.94 and
B1.34 respectively. For the property business, fair value, using PBV instead of PER,
is B0.65 while there’s B2.54 for cash. Upside from the current share price stands at
16.3%. We reiterate our recommendation of “BUY”. According to the dividend
payment from tremendous remaining cash, we project that there’s likely to be
10% of buy back to sustain flexibility of the company’s investment and investors’
benefits.