BTS Group Holdings

BTS Group Holdings Plc (BTS) 

 

Above estimates 

BTS posted a 3Q15 (Oct-Dec 2015) net profit of Bt607m, down 38% YoY but up 28% QoQ. Stripping out the Bt17m gain on sales of investments and Bt1m gain on sales of assets, core earnings for 3Q15 would be Bt593m, up 21% YoY and 38% QoQ. The result was somewhat above our forecast and the consensus, due to a tax credit against expected tax expenses. 

Results highlights

The key driver for the core profit growth was the tax credit against tax expenses booked in 3Q14 and 2Q15. However, overall operations broadly softened due to: 1) the lower contribution from its media business, both YoY and QoQ, 2) weaker contribution from its property business, both YoY and QoQ, 3) lower net share of profit from investments in joint ventures and associates, and, 4) higher SG&A expenses. VGI’s net profit fell 23% YoY and 10% QoQ to Bt232m, due to the termination of the company’s modern-trade media business. Meanwhile, the net share of profit from investments in joint ventures and associates decreased 36% YoY, due to share of loss from investment in a joint venture with Siri.

However, the contribution from its mass transit business expanded YoY and was flat QoQ. The share of net profit from investment in BTSGIF rose 13% YoY to Bt219m. Moreover, O&M revenue rose 2% YoY to Bt395m, attributable to the contractually agreed upon escalation in the operating fees at Green Line extensions. In addition, the contribution from its property business fell both YoY and QoQ, due to the absence of condo units transferred (sold out) and the diminished revenue from Eastin Grand Sathorn Hotel following the disposal of asset to U City. 

Outlook

BTS’ 4Q15 (Jan-Mar) core earnings are expected to decline both YoY and QoQ, driven by smaller contributions from all key business. The Jan-Mar quarter is normally a period of low seasonal demand for mass transit use. Historical data suggest that ridership numbers normally soften 1% QoQ during the quarter. Also, VGI’s contribution is likely to shrink QoQ, driven by the ad spend low season. In addition, the contribution from property business is expected to dwindle YoY, due to no condo sales and a decline in revenue from the Eastin Grand Sathorn Hotel. Moreover, tax expenses are expected to normalize in the Jan-Mar quarter. 

What’s changed?

We have revised up our FY15 net profit forecast by 2% to Bt4,476m to fine-tune that with the tax credit booked in 3Q15. However, we slashed our FY16 net profit forecast by 19% to reflect the potential share of loss from investments in the joint venture with Siri.  

Recommendation

In our view, its recent share-price underperformance has already priced in the expectation of FY15-16 subpar core earnings growth. However, we think that the anticipation of new state mass-transit projects, which will provide a significant earnings upside for BTS, will catalyze the share price going forward. There is also scope for upside to BTS’ future earnings from its new joint-venture property projects. Likewise, BTS’ current valuation—an end-Mar 2016 PBV of 2.0x, discount its long-term mean of 2.2x—is undemanding.