BTS Group Holdings

BTS Group Holdings Plc (BTS)

Investment thesis
The key messages at the analyst meeting last Friday reaffirmed our optimistic view of BTS’s long-term growth prospects. Expectations of sustained strong earnings growth through 4Q12/13 together with sales of net farebox revenue to a planned Infrastructure Fund (IFF) will boost its share price further, we anticipate. Good prospects for all key businesses should support a core earnings CAGR of 28% for FY12/13-14/15 (against 14% for the broad SET). There may also be scope for upside to our FY13/14 bottom-line forecast from profit accretion from the IFF and further sales of land plots. Valuation-wise, BTS is undemanding—FY13/14 PEG of 0.9x and a PBV of 2.5x—steep discounts to the regional means of 2.8x and 4.0x, respectively.
Strong earnings growth momentum expected for 4Q12/13
Profit contributions from the media businesses are expected to be flattish QoQ, but the property unit should be a key growth driver in 4Q12/13 (Jan-March 2013), fueled by greater condo unit transference—145 units at Abstracts Phahonyothin Park are expected to transfer by March 2013—almost triple the number for 3Q12/13. Presales have improved further—from 65% in Sept 2012 to 73% in Dec 2012 and to almost 80% currently. Also, more condo units at Abstracts Sukhumvit 66/1 are expected to transfer during 4Q12/13, as presales rose to 84% in Dec 2012 (from 74% in Sept 2012).
Moreover, earnings at the mass transit business are expected to improve QoQ, driven by a fatter GPM with the normalization of personnel expenses. Note that ridership numbers in the Jan-March quarter are normally flat QoQ.
Fare increases to mitigate the effect of low seasonal demand
Management guides that the average fare will rise in 1Q13/14 (April-June 2013) by less than 10%. We think that the increase in average fare will mitigate the negative impact of low seasonal demand for mass transit. There could be scope for the upside to our FY13/14 earnings forecast if the average fare rise were to exceed our assumption of 5%. If the mean fare were to increase by 10%, our FY13/14 net profit forecast would expand by another 9% from our current model.
A special dividend is very likely
Management guidance reaffirmed our view about the possibility of a special dividend payment. We have, therefore, conducted a scenario analysis for the expected dividend payment from BTS (see Figures 1-3). Our study indicates that if BTS received Bt50-60bn in proceeds from sales of net farebox revenue to the IFF and won the tenders to operate three new mass transit lines, the special dividend could range Bt0.65-1.56/share. In addition, if it won a fourth new mass transit line, the special dividend could range Bt0.14-0.60/share.