BTS Group Holding

Asset swap in property business BUY

BTS Group Holding Plc (BTS)

BTS’ board has approved in principle the disposal of its entire holdings in two

subsidiaries in the real estate business: BTS Assets Co., Ltd. (BTSA) and Kamkoong

Property Co., Ltd. (KKP), to Natural Park Plc (NPARK). In exchange, it will receive:

1) up to 213,000mn newly issued NPARK ordinary shares as a PP (up to 37.06% of

NPARK’s total issued shares) for Bt0.047/share; 2) warrants – at no cost - to

purchase NPARK ordinary shares. The purchase is set at a ratio of 2 ordinary shares

for 1 warrant and each warrant can purchase one newly issued NPARK share at an

exercise price of Bt0.047/share; and/or 3) cash as per negotiations between the

parties.

BTSA and KKP own buildings and 18 rai of land with a market value of ~Bt8-10bn.

BTSA is the owner of Eastin Grand Hotel Sathorn Bangkok on Sathorn Road next

to BTS Surasak Station. It also owns land on Phaholyothin Road, near BTS Mo Chit

Station. KKP owns land on Phayathai Road, next to BTS Phayathai Station.

Before finalized, this deal must first pass through several steps. These include a

due diligence conducted by BTS on NPARK, an evaluation of the deal as to the

appropriateness of the price to be paid for BTSA and KKP and meeting the

conditions of the deal (see Figure 1), plus a successful capital call now being

undertaken by NPARK (approved by its EGM on Sep 16, 2014 consisting of a rights

offering of 180,638mn new shares for Bt0.035/share). Subsequent to completion of

these steps, the board will again look at the deal and make its final decision.

Comment.

This deal will help BTS unlock the value of its assets and get LT benefit via projects

built on the land. The risk is NPARK’s ability to deliver earnings to BTS. The earliest

this transaction could be completed is in January-March 2015 (its 4QFY15).

By our estimates, the transaction could give BTS capital gains of Bt2-3bn, based on

the difference between the market value of the assets of Bt8-10bn and book value

of Bt4-5bn, minus the stake remaining in the assets. The cash NPARK receives

from its rights offering of up to Bt6.3bn will be used to develop the properties it is

buying from BTS, giving BTS some LT benefit via its remaining stake. This sale also

allows BTS to hang on to its cash of ~Bt30bn to bid for mass transit projects.

After the transaction, BTS will record earnings from NPARK in the form of equity

income. Note that NPARK reported net profit of Bt296-377mn in 2012-13 and net

loss of Bt162mn in 6M14. This implies a contribution from NPARK of -5% or +5% to

BTS’s FY2016 earnings, based on previous records and not including new projects.

Since the asset swap is at the same value (and equivalent to our assumptions) and

we do not factor in new projects, there is no impact on our PT. We maintain BUY

on BTS with mid-2015 SOTP PT of Bt10.8. We like BTS for the upside from new

mass transit projects as they come up for auction. Share price downside in the

near term is supported by its share repurchase program lasting until Feb 2015 and

its high dividend yield of 6-7% p.a.