BTS Group Holdings

BTS Group Holdings Plc (BTS)

In line with estimate
BTS posted a 1Q13/14 (April-June) net profit of Bt10,824m, up by 5,463% YoY. The result was in line with our estimate and the consensus.
Results highlights
The driver of the YoY net profit surge in 1Q13/14 was the gain from the selling of forward net fare box revenue to BTSGIF of Bt13,498m. Furthermore, the operations of all key businesses—mass transit, media and property—posted strong improvements. The gross margin of the mass transit business increased to 57% in 1Q13/14 from 50% in 1Q12/13, the gross margin of the media unit inched up to 60% from 58% in 1Q12/13 and the gross margin of the property operation jumped to 40% from 23%.
VGI posted strong bottom-line growth of 93% YoY and 37% QoQ to Bt308m for 1Q13/14. The property business reported YoY earnings expansion. Transference of condo units at Abstracts Phahonyothin Park rose to 42% 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. Moreover, interest expenses dived 48% YoY to Bt193m, due to lower debts outstanding.
Outlook
BTS’s core earnings growth 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. All of the units at The Abstracts Pahonyothin Park are expected to be sold and transferred by March 2014.
What’s changed?
Even though, 1Q13/14 net profit represents 82% of our FY13/14 forecast of Bt13,192m, we maintain our model unchanged for the moment, as there was a huge extra gain booked in 1Q13/14 from selling fare box revenue.
Recommendation
Expectations of strong core earnings growth momentum through FY13/14 together with a hefty long-term core profit expansion profile—an FY13/14-15/16 CAGR of 31% against 8% for the SET—will make for further share price upside, we believe. Also, the announcement of committed dividend payments for FY13/14-15/16 totaling not less than Bt21,000m (implying dividend yields of 5.8-7.8%) should trigger a valuation re-rating. BTS announced an interim DPS of Bt0.19 for 1Q13/14 operations—a 20% payout and a dividend yield of 2.2% (XD on August 22; payment on September 6).
Over the long-term, there’s much more to the 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 1.6x.