BTS Group Holdings

BTS Group Holdings Plc (BTS)

In line with estimate
BTS posted a 2Q13/14 (July-Sept) net profit of Bt1,100m, up 59% YoY but down 90% QoQ (a Bt13,498m gain was booked from selling forward net fare box revenue to BTSGIF in 1Q13 /14). Stripping out a Bt380m gain from sales of assets, the core profit would be Bt720m, up 83% YoY. While the net profit was above our estimate and the consensus, due to the extra gain, core earnings were in line with both our number and the street expectation.
Results highlights
2Q13/14 core earnings growth was driven by operational improvements across all key businesses. The GM of the mass transit unit increased to 61% in 2Q13/14 from 50% in 2Q12/13 and 57% in 1Q13/14, the GM of the media unit inched up to 63% from 61% in 2Q12/13 and 60% in 1Q13/14 and the GM of the property operation rose to 41% from 38% in 2Q12/13 and 40% in 1Q13/14.
VGI posted bottom-line growth of 30% YoY and 6% QoQ to Bt328m for 2Q13/14. The property business reported YoY earnings expansion. Another 201 condo units at Abstracts Phahonyothin Park transferred in 2Q13/14, compared to none in 2Q12/13 and 225 units in 1Q13/14. Moreover, interest expenses dived by 54% YoY and 10% QoQ to Btm, due to lower debts outstanding.
Outlook
BTS’s core earnings are expected to expand both YoY and QoQ in 3Q13/14 (Oct-Dec), driven by greater profit contributions from all key business. The Oct-Dec quarter is normally high season for mass transit use and for the media business. Also, VGI will increase ad rates across all media categories in 3Q13/14. Moreover, the property unit should post stronger numbers on greater unit transference. Presales at Abstracts condominium projects reached 89% in 2Q13/14, up from 87% in 1Q13/14.
What’s changed?
Even though 1H13/14 net profit represents 90% of our FY13/14 forecast of Bt13,192m, we maintain our model unchanged for now, as a huge extra gain was booked in 1Q13/14 from selling forward net fare box revenue.
Recommendation
Expectations of strong core earnings growth through FY13/14 together with a hefty core profit expansion profile—an FY13-15 CAGR of 31% 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 5.5-7.3%) will support the stock price. 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 0.3x, which represents a steep discount to the Asian mean of 0.7x.