BTS Group Holdings

BTS Group Holdings Plc (BTS)
 

Above estimates: BTS posted 3Q11/12 (Oct-Dec) net earnings of Bt329m, up 2,563% YoY but down 74% QoQ. Stripping out revenue from court-ordered compensation of Bt11m and an FX gain of Bt41m, 3Q11/12 core profit would be Bt276m, up by a hefty 2,985% YoY and 1% QoQ. 3Q11/12 earnings were somewhat above both our estimate and the consensus, led by higher-than-expected revenue from the mass transit and media businesses and a lower-than-modeled effective tax rate.
Results highlights: The strong YoY core profit growth drivers were: 1) higher ridership for the mass transit business—up by 10% YoY (but down 4% QoQ) to 43.5m Pax (the opening of the On Nut-Bearing extension in August 2011 was a key factor), 2) realization of O&M revenue from the On Nut-Bearing extension and 3) a higher earnings contribution from the media business with additional modern trade contracts and growth from BTS-related media. However, the flooding wiped out the traditional high seasonal effect of the quarter.
Outlook: BTS’s core earnings growth momentum should be sustained through 4Q11/12, driven by an immediate bounce in the mass transit business and gradual improvements in the media and property operations.
What’s changed? We have upgraded our FY11/12 net profit forecast by 20% to Bt2,037m to factor in the better-than-expected 3Q11/12 result, a stronger media revenue growth assumption (to 40% from 20%) and fine-tuning for the effective tax rate. We think a consensus profit forecast upgrade is very likely. 
Recommendation: Expectations of QoQ earnings growth in 4Q11/12 should push up the share price in the near-term. In addition, the firm’s profit profile is resilient to a weakening global economy. Its FY11/12 core bottom-line turnaround and impressive core earnings CAGR of 36% for FY12-14, driven by substantial capacity expansion, should eventually support a share price re-rating. BTS’s valuation is undemanding—an end-March 2012 PBV of only 1.0x, deeply discounted to BMCL’s 7.9x (Bangkok’s MRT operator) and the regional mass transit average of 2.2x. We, therefore, maintain our BUY rating with an end-March 2012 target price of Bt0.91.