BTS Group Holdings

BTS Group Holdings Plc (BTS)

Investment thesis
Expected QoQ earnings growth in 2Q14, anticipation of that the timeframe
for state infrastructure projects (including mass transit lines) may
be moved forward and new government measures to boost
consumption( which would favor BTS’s media and property units) will
catalyze the share price going forward, we believe. BTS is cheap—an
end-March 2015 PBV of 1.9x, 0.3SD below its long-term mean of 2.1x.
Moreover, the announcement of committed dividend payments for
FY14-15 (implying dividend yields ranging 8.0-9.2%) will support the
stock price.
Core earnings contraction expected for 1Q14, squeezed by …
We expect BTS to post a net profit for 1Q14 (April-June) of Bt479m,
down 96% YoY but up 16% QoQ. The core profit is also estimated at
Bt479m, down 7% both YoY and QoQ. The assumed YoY net profit
dive was due to a 1Q13 extra gain from on the sale of future net fare
box revenues. The factors behind the core earnings fall were: 1) a
lower contribution by the mass transit business (QoQ), 2) a weaker
contribution by the media operation (YoY) and 3) a smaller contribution
by the property unit (both YoY and QoQ).
…weaker contributions by all key businesses
The April-June quarter is normally a period of low seasonal demand for mass
transit use. Seasonality has been exacerbated by the fact that all Thai
universities postponed the start of the first semester from June to August (in
order to align with other countries in the AEC). As such, the 1Q14 ridership
number rose only 2% YoY and dropped 10% QoQ to 51.3m trips. We
assume that the average fare to increased 7% YoY (flat QoQ) to Bt27/trip. As
such, the share of profit from the investment in BTSGIF probably rose YoY
but declined QoQ. We also think O&M revenue grew YoY but softened QoQ.
VGI’s contribution is expected to have slipped YoY, due to the ad
spend slump. However, it should have improved modestly QoQ, driven
by a nascent recovery. Meanwhile, the property unit’s bottom-line will
probably report both YoY and QoQ declines on lower condo
transference and hotel occupancy rate slippage.
Forecast QoQ growth in 2Q14 core earnings
BTS’s 2Q14 core earnings (July-Sept) are expected to expand QoQ,
driven by greater contributions from all key businesses. The July-Sept
quarter is normally a period of high seasonal demand for mass transit
use—ridership numbers typically rise about 9% QoQ. Also, VGI’s
contribution is likely to increase QoQ, driven by the ad spend recovery.
Moreover, the property unit’s profit contribution is projected to expand
QoQ, driven by a higher hotel occupancy rate. However, we still expect
the firm’s 2Q14 core profit to decline YoY, as the performances of the
media and property units will be weaker