BTS Group Holdings

BTS Group Holdings Plc (BTS)

As expected: BTS posted a Q4 2011/2012 (Jan-March) net profit of B315m, a turnaround from the Q4 2010/2011 net loss of Bt109m, but down 4% QoQ. Stripping out extra gains of Bt19m, 4Q11/12 core profit earnings be Bt296m, a turnaround from a core loss of Bt92m in Q4 2010/2011 and up 7% QoQ. The core profit was in line with our forecast and the consensus. BTS also reported a FY11/12 net profit of Bt2,062m, up 718% YoY.
Results highlights: The YoY earnings turnaround (and QoQ profit growth) was driven by: 1) improvements across all key businesses, 2) lower interest expenses and 3) reduced SG&A expenses. Revenue from the mass transit business rose by 41% YoY and 9% QoQ to Bt1,468m, led by strong ridership growth of 22% YoY and 11% QoQ to 48m Pax. Media income expanded by 31% YoY but declined 8% QoQ to Bt465m. The YoY growth was due to aggressive penetration into modern trade. The QoQ slippage was because of low season and the delayed impact of the flooding. Property business revenue rose by 13% YoY and 92% QoQ to Bt210m, led by sales at Abstracts Condo and Thana City.
Overall operating EBITDA margin expanded to 50.6% in Q4 2011/2012 from 44.1% in Q4 2010/2011 and 47.4% in Q3 2011/2012. Interest expenses fell 23% YoY but rose 2% QoQ, while the SG&A/sales ratio declined to 17.7% in Q4 2011/2012 from 20.9% in Q4 2010/2011 (but rose from 16.4% in Q3 2011/2012)
Outlook: BTS’s YoY earnings growth momentum should be sustained through Q1 2012/2013, driven by strong ridership numbers and gradual improving media and property operations. However, we expect profitability to be flattish QoQ.
What’s changed? We maintain our FY12/13 net earnings forecast unchanged at Bt1,240m. 
Recommendation: Concerns about the legal action against the new O&M contract may generate negative sentiment toward the stock, but we think those concerns are already priced in. Sustained strong ridership growth together with media business expansion will catalyze the share price performance going forward. BTS is undemanding—an end-March PBV of only 1.2x, deeply discounted to BMCL’s 8.5x and the regional mean of 2.3x. The current share price still offers 15% upside to our target price (excluding the new O&M contract of Bt0.91/share).