BTS Group Holdings

BTS Group Holdings Plc (BTS)

Investment thesis
BTS’s big-lot sales of VGI stock yesterday mean scope for upside to the dividend payout. That together with expectations of strong core earnings growth—an FY13-15 CAGR of 31% against 8% for the SET—should boost the share price going forward. Note that there was already yield support from the announcement of committed dividend payments for FY13/14-FY15/16 totaling not less than Bt21,000m (implying dividend yields of 5.4-7.1%). And 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 FY13/14 PEG ratio is an undemanding 0.3x, a steep discount to the Asian mean of 0.7x.
Big lot sales of VGI shares  
Yesterday, BTS sold 220m VGI shares—6.7% of the shares in its advertising space management subsidiary—in a series of big-lot transactions at Bt12.30 apiece (the price determined by book-building). The total transaction value was Bt2,706m. The sales were made through overnight placements to local and institutional investors.
Following the sales, BTS now holds (directly and indirectly) 55.8% of the paid-up shares in VGI (down from 62.5%). However, management insists that the firm will remain a major long-term shareholder in the media company.
Extra gain suggests scope for upside to dividend payout
As a result of the share sales, BTS is likely to book a before-tax extra gain of about Bt1,936m (before tax) in its 3Q13/14 company-only income statement (but not to the consolidated income statement, as it still holds a majority stake in VGI—accounting rules prohibit the gain from being recognized to the consolidated income statement—though it will be added to the consolidated balance sheet).
The proceeds from selling the VGI shares could be paid out as dividends, which would mean scope for upside to BTS’s dividend payout for FY13/14 (on top of the committed dividend of Bt6,000m). If all Bt2,706m were to be added to the FY13/14 dividend, it would make for an additional DPS of Bt0.22, pushing up the yield to 7.7%.  
Earnings forecasts trimmed to factor in lower equity stake in VGI   
As BTS’s shareholding in VGI has declined to 55.8%, the firm will recognize a smaller percentage of the earnings of its subsidiary. We have, therefore, revised down our long-term earnings forecasts by an average of 5% to fine-tune for its lower equity stake. As such, our revised end-March 2014 SOTP-derived target price declines slightly to Bt10.80 (from Bt11 previously).