BTS Group Holdings

BTS Group Holdings Plc (BTS)

Investment thesis
The key messages at the analyst meeting left us more optimistic over BTS’s 1Q14 earnings outlook and reaffirmed our view of its long-term growth prospects. We expect the new government to speed up the timeframe for state infrastructure projects (including mass transit lines) and institute measures to boost consumption, which would favor the firm’s media and property businesses. As such, the share price should regain momentum soon. BTS is cheap—an end-March 2015 PBV of 1.8x, 0.3SD below its long-term mean of 2.1x. Moreover, the announcement of committed dividend payments for FY14-15 (implying dividend yields ranging 8.4-9.6%) will support the stock price. 
Renewed optimism on 1Q14 earnings outlook  
Even though 1Q14 (April-June) core earnings are expected to fall both YoY and QoQ (the weakest quarter of this year), due to lower contributions by the mass transit (QoQ) and property businesses (YoY), we are now more optimistic over the bottom-line outlook, due to the absence of an extra provision for expenses related to new mass transit lines (booked in 4Q13).
The April-June quarter is normally a low period for mass transit use. Historical data indicate that ridership normally slips about 3% QoQ during the quarter. Also, condo transference is expected to fall to 50 units in 1Q14 from 225 units in 1Q13 and 53 units in 4Q13. And the earnings contribution from Eastin Grand Hotel will probably decline both YoY and QoQ—the occupancy rate is likely to be reported at 70% for 1Q14, down from 78% in 1Q13 and 73% in 4Q13. Given the weak 1Q14 outlook, we have cut our FY14 net profit forecast by 11% to Bt2,289m and revised down SOTP-derived target price from Bt10 to Bt9.90 (see Figure 1). 
Earnings to regain momentum in 2Q14
BTS’s core earnings should resume expanding in 2Q14 (July-Sept), driven by high seasonal demand for mass transit use and an improving domestic economy. High seasonal demand for mass transit starts in the final six months of the calendar year. Ridership normally rises by 9% QoQ in the July-Sept quarter and by a further 2% QoQ in the Oct-Dec quarter. Moreover, we expect the new government to act decisively to boost the economy, which would strengthen both the media and property businesses. The remaining 200 units (as of end-March 2014) at Abstract Phahonyothin Park are expected to be sold and transferred by March 2015.    
Eased concerns over delays to tenders for new mass transit lines   
The junta has prioritized making progress on state infrastructure projects. As such, the tenders could open for the operating contract for the Dark Green South Line (Bearing-Samut Prakarn) and for civil construction work on the Dark Green North Line (Mo Chit-Saphan Mai-Ku Khot); we previously assumed that they wouldn’t open till 2015.