BTS Group Holdings

BTS Group Holdings Plc (BTS)

- BTS forms consortium to bid for Beijing subway
BTS and CITIC Construction (CITIC), a Chiness state enterprise (owning financial
institutions, insurance and contraction business) have jointly formed a consortium
(BTS-CITIC; BTS holding 49% stake and CITIC holding 51%) to enter the bidding for
the concession to operate the Beijing Subway Line 16 Franchise Project (17 lines have
been operated, running 50 km in far-western Beijing from Beianhe to Wanping,
totaling 29 stations). The winning bidder is required to invest in both the electric train
system and the mechanical systems (trains, signalling systems and fare-collection
systems) at the total of CNY15bn (B75bn) and will be paid by passenger fare revenue
(as well as state subsidy if fare revenue is lower than the forecast) and 30-year
commercial right on the subway line (expected to commence operation from 2018
on). BTS-CITIC has already submitted the bidding envelope. The result would be
announced in next three months. All the civil works of the project will be responsible
by Chinese government.
- BTS may grow abroad
There are three bidders in this auction: 1) BTS-CITIC, 2) Beijing Mass Transit Railway
Operation Corporation Limited (Beijing's state enterprise) and 3) Beijing MTR
Corporation (a joint venture of a Chiness state enterprise and MTR, railway
entrepreneur in Hong Kong). Beijing Mass Transit Railway Operation Corporation
Limited has already operated 14 railways, and Beijing MTR Corporation has operated
three railways lines in Beijing, so BTS-CITIC is not likely to win the auction. Still, we
are optimistic that BTS would benefit from the auction: 1) BTS would have more
opportunity to expand its business abroad, so it would not have to rely solely on
domestic business (auction for skytrain line extension might be delayed as a result of
the political turmoil). 2) As CITIC is a large Chinese state enterprise that owns a
variety of businesses, it might expand BTS’s businesses in the future.
- High upside and dividend yield even not including added value.
“BUY”
If BTS-CITIC wins the bid, B0.5/share added value would be included in the fair value
(under the assumption that 15% expected rate of return from B75bn project
investment grants BTS-CITIC the return of B11bn, and BTS gains B5.5bn return as
BTS holds 49% stake of BTS-CITIC). We maintain our earnings forecast and fair value
until the bidding result comes out. It is advisable to speculate on this factor, as the
stock market is likely to have a positive outlook on BTS's opportunity to expand
business abroad. BTS's fair value (not including added value) implies 45% upside and
6% dividend yield. We recommend "BUY".