BTS Group Holdings

BTS Group Holdings Plc (BTS)

- 2Q13/14 normalized profit grows 32%qoq due to lower tax expense and strong mass transit business
BTS's 2Q13/14 (ended June 2013) net profit was B959m, plunging 11 folds from
1Q13/14 (B10.3bn extraordinary profit from BTSGIF establishment in 1Q13/14 versus
B379m extraordinary profit from a land sale in 2Q13/14). 2Q13/14 normalized income
was B579m, better than expected, growing 31.5%qoq, as effective tax rate dropped
from 36.5% in 1Q13/14 to 16.4% in 2Q13/14. The Revenue Department has
interpreted that the establishment of BTSGIF equates BTS's loan transaction from the
fund, so the tax is calculated from the earnings from the skytrain business, in line
with our forecast. However, the Revenue Department has allowed BTS to count its
income from BTSGIF for interest expense to reduce the tax, so BTS's tax expense was
lower than expected. BTS's core business was still strong in 2Q13/14. Income from
mass transit business (share of profit from BTSGIF shareholding + operation and
maintenance income for the extension line + interest income from investment with
revenue from BTSGIF establishment) grew by 13.3%qoq, due to increase in
passenger fare of main routes that BTS recognized from BTSGIF for a full quarter.
Income from advertising media business increased by 0.4%qoq, as BTS recognized
income from new advertisement areas on 35 bogie trains for a full quarter. BTS's
income from property business stood high at B916m, as BTS booked income from the
transfer of 200 rooms of Abstract Phahonyothin condominium (close to 1Q13/14). In
1H13/14, BTS has transferred and booked income from 425 rooms, making up 70% of
our 2013/14 forecast at 607 rooms.
- Revise up FY2013/2014 and FY2014/2015 forecast to reflect lower than-expected tax expense
We project that 3Q13/14 (ends December 2013) normalized profit would make the
year high, due to the following: 1) Mass transit and advertising media businesses
would have the highest passenger volume due to seasonal effect and benefit from two
new stations of Taksin - Bang Wa extension that will be opened in 5 December. 2) For
property business, BTS would recognize income from the transfer of 27% (273 rooms)
of Abstract Phahonyothin condominium that have been sold and pending to be
transferred. However, 4Q13/14 normalized profit would weaken from 3Q13/14 after
the end of high season, but likely to stand close to 2Q13/14, so 2H13/14 profit is
projected to improve significantly. 6M13 normalized profit made up 51.4% of
FY2013/2014 earnings forecast. Thus, we revise up BTS's FY2013/2014 and
FY2014/2015 net profit forecast by 15.3% and 6.0% respectively, mainly due to the
following: 1) FY2013/2014 effective tax rate is projected to drop from 32.8% to
23.4% due to the aforementioned factors. 2) FY2013/2014 income from property
business is likely to be higher than expected due to the transfer of Abstract
condominium. Under a new forecast, BTS's FY2013/2014 normalized profit is
projected to grow by 50.6% to B2.3bn, and grow 4.0% in FY2014/2015.
- To benefit from extension line auction. "BUY"
Under the new forecast, new fair value rises from B12.0 to B12.25 already, including
B3 added value as BTS is likely to win the auction for four extension lines which will
take place in 2014 (Bearing - Samutprakarn, Mochit - Saphan Mai, Minburi - Kae Rai,
and Bangna - Suvarnabhumi). Moreover, the auction is likely to boost share price
close to new fair value at B12.25. As the new fair value implies 35% upside and
dividend yield is expected over 4%p.a, we reiterate "BUY".