BTS Group Holdings

BTS Group Holdings Plc (BTS)
Investment thesis
Expectations of strong 1Q13/14 earnings growth together with hefty core profit expansion profile—an FY13-15 CAGR of 37% against 8% for the SET—will make for further share price upside, we believe. Moreover, the announcement of committed dividend payments for FY13/14-FY15/16 totaling not less than Bt21,000m (implying dividend yields of 6.1-8.1%) should trigger a valuation re-rating. Over the long-term, there’s much more to the BTS growth story—new mass transit lines and the unlocking of value from property assets. The stock’s FY13/14 PEG ratio is an undemanding 1.3x, which represents a steep discount to the Asian mean of 1.8x. 
Record high earnings expected for 1Q13/14
We expect BTS to post a record net profit of Bt11,141m for 1Q13/14 (April-June), up by 3,502% YoY. Stripping out an assumed gain of Bt13,333m from selling net-fare box revenue to BTSGIF, 1Q13/14 core earnings would be Bt474m, up by 47% YoY. The drivers of the modeled strong core profit growth were: 1) a greater contribution from VGI, 2) a bigger contribution from the property business and 3) lower interest expenses.
VGI is expected to post strong bottom-line growth of 77% YoY to Bt283m for 1Q13/14. The property business should also report YoY earnings expansion. We anticipate that transference of condo units at Abstracts Phahonyothin Park will rise to 40% as of end-June 2013 from 20% at end-March. Meanwhile, the occupancy rate at the Eastin Grand Hotel Sathorn rose to 76% in 1Q13/14, much higher than it was in 1Q12/13 when it first opened.    
Profit growth sustainable throughout FY13/14
BTS’s core earnings growth momentum should continue throughout FY13/14. The profit contribution from the media business is expected to expand further, driven by high season and a fatter gross margin. The property unit should also post stronger numbers on greater unit transference. We now expect 95% of the units at The Abstracts Pahonyothin Park to transfer by March 2014, based on management guidance.
FY13/14 core profit forecast upgrade, due to property unit
We are now more optimistic about BTS’s property business. The average occupancy rate at Eastin Grand Hotel Sathorn has been sustained at 76% since April 2012 through 1Q13/14. We also have expanded expectations for the Pahonyothin condo (see above). As such, we have revised up our core profit forecast for FY13/14 by 9% to Bt2,526m to factor in: 1) a higher hotel occupancy rate assumption to 75% (from 65%) and 2) a greater condo unit transference expectation to 95% (from 80%).
However, we have slashed our net profit forecast by 42% to Bt13,192m to fine-tune for the expected extra gain from sales of net-fare box revenue. Factoring in our new market CoE assumption (12.4%, up from 12.1%), our end-March 2014 target price declines to Bt10 from Bt10.25.