BTS Group Holdings

BTS Group Holdings Plc (BTS)

Tremendous cash from Infrastructure Fund to launch into new
extension projects
According to CEO Forum meeting with BTS (29 November 2012), the
highlight went to Infrastructure Fund (IFF). In short, BTS would
subscribe for one-third of all units of the fund which would take B16-
20bn of cash after investing the future net fare box revenue (after
operating cost and capital expenditure) of BTSC (97.5% held by BTS)
from operation of the core green lines during the concession period
(until 4 December 2029) at a value of around B50-60bn. The Fund
would offer its investment units to the public around 4Q12/13 (ending
on March 2013). In the future, BTS would get the return from operating
the lines and dividend. In a short term, BTS would invest its cash from
the mentioned transaction in low-risk assets such as deposit in
preparation for major projects which are about to be open for bidding
since 2013 onward. These projects are the Green line extension (Mochit-
Saphan Mai and Bearing-Samut Prakan), the Pink line (Khae Rai-
Minburi), and the Light Rail Transit line (Bangna-Suvarnabhumi Airport).

Apart from tremendous cash, future profit direction unaffected
by business structure adjustment
BTS’s profit direction after the establishment of IFF has turned out to be
better than our earlier report. There mainly are 3 benefits from this
transaction which are already included in our forecast as follows. 1)
Under the assumption of net fare box revenue of B55bn for IFF, BTS
would obtain B7.3bn of extraordinary profit from this transaction
(recognizing in 4Q12/13). 2) The interest from depositing cash with the
financial institution would be around 3% per year, before BTS uses it to
invest in new projects. 3) The dividend that the company would receive
from holding 33.3% stake in the mentioned fund would bring about the
benefits as follows. First, there wouldn’t be tax expenses and
depreciation (around 30% of average revenue per passenger) for BTS.
Moreover, there’s one more benefit beyond our projection which is that
BTS would be able to save more of its corporation income tax due to
selling of net fare box value into the fund at a value of B50-60bn
because, in terms of tax, it is considered that BTSC would make
transaction of B50-60bn of loan from the fund. Accordingly, the
calculation of profit base for annual tax payment of BTS would still have
to be based on the revenue from the abovementioned concession;
however, this would be offset by the mentioned transaction of loaning as
the management has expected that it would help save B5-6bn during 17
years long. Accordingly, BTS’s long-term profit after selling future
revenue into Infrastructure Fund until the end of concession is likely to
decline which would be lower than our projection under an assumption
that BTS has no new projects during the 17-year concession period.
Nevertheless, we’re convinced that BTS’s progress in new projects would
be seen in 1-2 years ahead, benefiting long-term growth.

Fair value at B7.50 with 16% upside. Reiterate “BUY”
Under conservative assumption not including 3 new extensions, we
maintain our forecast projecting BTS’s 2012 net profit to grow
outstandingly by 5x to B11bn. For the company’s profit, it still tends to
grow continuously in 3-4 years ahead. New fair value, using
conservative method (not including new extensions), stands at
B7.5/share with high upside at 16%. We recommend “BUY” for BTS.
BTS Group Holdings (BTS)