BTS Group Holdings
Play
Driven in short term by shareholders with VGI subscription right BUY
Current price (B) 5.63
Fair Value (B) 5.35
Market cap (B bn) 49.03
Shareholders have subscription right of 367.2-442.8 BTS
shares to 1 VGI share
Share price driven in short term. Prepare to revise up
profit forecast after meeting today
New fair value estimated at B6.40-6.80. Buy
Shareholders have subscription right of 367.2-442.8 BTS shares
to 1 VGI share
BTS has fixed 4 September 2012 as a record date for shareholders to
exercise the right to subscribe to shares of VGI Global Media (BTS’s
subsidiary operating media and advertising business (29% of BTS’s revenue))
at the IPO price (which has still not revealed). Book-closing date is fixed
subsequently on 5 September. BTS’s shareholders will have the right to
subscribe to VGI shares at a ratio of 367.22-442.80 BTS shares to 1 VGI
shares. The number of BTS’s shares to be used in the VGI subscription comes
from the current common shares of 9,207 million and possible common
shares from a conversion of convertible bonds (at a price of B5.12 each) of
around 9,702 million (totaling 1,894 million shares). If there is not a
conversion of convertible bonds until the record date, the ratio for VGI
subscription will be 367.22 BTS shares to 1 VGI share, but if there is a
conversion, the ratio will be 442.80 BTS shares to 1 VGI share.
Share price driven in short term. Prepare to revise up profit
forecast after meeting today
As BTS’s shareholders will receive the right to buy VGI shares if they hold the
stocks until 4 September (record date), BTS’s share price might increase until
then as VGI is a growth stock which is in high demand from its notable profit
growth. Net profit of VGI in the past 3 years has grown average by 67%yoy.
Furthermore, VGI still has a potential to generate additional profit in the
future, preliminarily from the following factors. 1) Advertising areas in BTS
will increase from new trains and future BTS stations. Moreover, the company
also has a plan to expand advertising areas by installing platform screen
doors at 9 BTS stations. 2) There are abundant advertising areas in more
than 1,000 department stores such as TESCO, BigC, and Watsons the
company can develop. Accordingly, we estimate these contributions will help
drive BTS’s net profit from advertising business significantly in the long run
(still not included in our forecast). Moreover, the company will also have
extraordinary profit from BTSC (BTS holds 100% stake), VGI’s shareholder
with 100% stake, which will sell some of its shares together with IPO shares.
As a result, we project that both BTSC and BTS might be able to recognize
extraordinary profit from the sale depending on the offering price. In
addition, norm profit of BTS in 2012 tends to outgrow our forecast due to the
too-conservative assumption for passenger volume we used. Consequently,
we are likely to revise up our profit forecast and fair value after the meeting
with VGI regarding its business plan today.
New fair value estimated at B6.40-6.80. Buy
The current share price of BTS has been pressured by possible increase in the
share number after the conversion of convertible bonds (convertible bond
holders can exercise their right at a price of B5.12/share) and BTS-W2
(exercise price is B4.375/share, to be exercised since November 2012)
totaling by 2,698 million shares at end-2012/2013 (or a dilution effect of
29%). However, as norm profit in 2012 tends to beat our projection and the
company might have extraordinary profit as mentioned above, they would
entirely compensate the dilution effect. Moreover, the current share price
might decrease due to the above factors, so this is an opportunity to
accumulate the stock for mid- and long-term investment. We reiterate to
buy. Fair value after the forecast revision is derived at B6.40-6.80/share
(fully diluted).
