BTS Group Holdings

Investment thesis

The key messages at the analyst meeting reaffirmed our view of BTS’s short-term and long-term growth prospects. Expectations of earnings expansion in 3Q14 and anticipation of new state infrastructure projects will boost the share price in the months ahead, we believe. The stock currently trades at an end-March 2016 PBV of 2.5x, 0.1SD above its long-term mean of 2.2x, which we believe is justified, as there is scope for upside to its long-term earnings profile from management contracts for new mass transit lines.    

Mass transit growth on track 

BTS’s total ridership for Oct 2014 was 18.9m trips, up by 4% YoY and 5% MoM, while the average fare was Bt26.70/trip, flat YoY. Ridership growth momentum is expected to be sustained through 3Q14 (Oct-Dec), as the Oct-Dec quarter is normally a high season for mass transit use—historical data suggest that BTS’s ridership increases by about 3% QoQ during the period. The QoQ growth may beat the historical trend this year, as the first semester for university started in mid August this year (until 2014, the first semester started in June). 

Note that total ridership in FY14-to-date (Apr-Oct) was 124.9m trips, up 2% YoY, and the average fare for FY14-to-date was Bt26.82/trip, up 1% YoY. With the improving ridership numbers, BTS maintains its ridership growth target range of 5-8% and effective fare increase target of 1% for FY14.    

Positive developments over mass transit extension lines    

BTS recently met with representatives from the Bangkok Metropolitan Administration (BMA) and the Mass Rapid Transit Authority of Thailand to discuss the O&M contracts for the Dark Green Line South (Bearing-Samut Prakarn) and the Dark Green Line North (Morchit-Saphan Mai-Ku Khot). The BMA is likely to award the O&M contracts directly to BTS, as that would make for swift CODs for the two lines. 

If BTS were to be awarded the contracts, we would expect them to be signed in mid 2015. The Dark Green Line South could possibly start operating in 2017 and in the Dark Green Line North in late 2018 or early 2019. These contracts would significantly augment BTS’s long-term earnings outlook.

Commercial property to drive growth in FY15     

The commercial property business (including a golf course and hotels) should be a growth driver in FY15 (April 2015-March 2016), as no new residential property project will launch and transfer in FY15. Abstracts Phahonyothin Park (Building A) was 87% transferred at end-Sept 2014. This project is expected to be fully transferred by end-March 2015. BTS is currently working on developing Abstracts Phahonyothin Park (Building B) and targets launching it in late FY15.