BTS Group Holdings

BTS Group Holdings Plc (BTS)
Investment thesis
The key messages from the analyst meeting reaffirmed our expectations of strong core earnings growth through FY13/14 together with a hefty core earnings expansion profile—an FY13-15 CAGR of 31% against 8% for the SET. Moreover, the announcement of committed dividend payments for FY13/14-FY15/16 totaling not less than Bt21,000m (implying dividend yields of 5.4-7.3%) will support the stock price. The FY13/14 PEG ratio is an undemanding 0.3x, a steep discount to the Asian mean of 0.7x. 
Good short-term earnings prospects  
BTS’s 3Q13/14 (Oct-Dec) core earnings prospects are good across all its key businesses. The Oct-Dec quarter is normally high season for mass transit use and for the media unit. VGI will increase ad rates across all its media categories in 3Q13/14. Moreover, the property unit should post stronger numbers on greater condo transference—on Oct 31, the transference rate had reached 66%. Presales at Abstracts Phahonyothin Park condo were 89% in at end-Sept, up from 87% at end-June, while the Abstracts Sukhumvit 66/1 project was fully transferred and revenue realized.
The earnings contribution from Eastin Grand Sathorn Hotel should remain strong—the occupancy rate in Oct was 83%, close to the 2Q13/14 rate. With regard to mass transit, there is scope for upside to 3Q13/14 ridership numbers (and, thus, equity income from BTS’s stake in BTSGIF), as the whistle-blowing mobs mostly gather near BTS stations, boosting weekday ridership to 700,000 trips/day (the normal number is 600,000+trips/day). Not only is there volume growth, but the average fare should rise in tandem with an increased proportion of Single Journey Trips (SJT; the mean fare of an SJT is 11% above a Sky Pass and 19% higher than a 30-day Pass).  
Scope for further fare increases
Pegged to the CPI of Bangkok, in Oct the authorized fare ceilings rose to Bt20.10-60.30 from Bt18.80-56.40 (depending on distance), equal to a 7% mean increase. This means scope for upside to BTS’s effective fare in the future (current effective fares range Bt15-42)—but not for another 13 months. The last effective fare rise was on June 1, 2013; fares may be increased not more than once every 18 months.  
Progress on opening tenders for new extension lines   
There has been some progress over tenders for new extension lines in recent months. The writing of the necessary regulations under the Public-Private Partnership Act—which will enable tenders to open—should be finished later this month. Also, Cabinet recently approved opening the tender for civil construction of the Dark Green-North Line (Morchit-Saphan Mai); bidding is expected to start in early 2014. Furthermore, the tender for the operating contract for the Dark Green-South Line (Bearing-Samut Prakarn) is expected to open early next year. Tenders for the Pink Line and the Light Rail Train are expected later in 2014.